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How to retire in 2023 – an HL adviser’s guide

HL Financial Adviser Bradley Clark reveals which retirement questions he gets asked the most and why it’s more important than ever to get the right answers.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Retirement is a big deal. And that means you need the right answers to big questions.

If you’re approaching retirement or even if it’s just creeping over the horizon, 2023 could be the year your retirement plans reach a turning point. We’re facing a tough economic climate, but we can still put together the best plan possible to retire with confidence.

Asking yourself or your adviser these questions will help you feel more comfortable about your retirement.

This isn’t personal advice. If you’re unsure what’s best for your situation seek personal advice. You can also get free, impartial retirement guidance from the government’s Pension Wise service. Tax rules can change and benefits depend on personal circumstances.

Will I have enough to retire?

This is the biggest question of them all.

The age you plan to retire determines how much time you’ve got left to save and how long you might need your money to last. Once we have a timeframe to work with, I take my clients through three steps:

1. Visualising their retirement lifestyle

It’s important clients have a good idea of how they’ll fill their time in retirement. Grand plans, big purchases and even every day hobbies can eat into your nest egg.

2. Costing up that lifestyle

This is where we need to factor in where we find ourselves this year. Sadly, retirement isn’t all holidays and lifelong dream purchases. You still have to pay the bills and put money aside for future expenses like long-term care. And the price of those things is ever changing.

Once I know what you envisage doing in retirement, I can help you put that into pounds and pence. To help with this, I’ll break down your expenditure into three pots:

  1. Essential spending – bills and general cost of living
  2. Normal spending – other regular but non-essential outgoings
  3. Discretionary spending – luxuries and big milestones with big price tags

3. Exploring what assets and income streams are available

We’ll look at things like property, cash, investments and, of course, pensions to see how you might cover your spending.

This exploration often leads to the next big question.

What options do I have for accessing my pension and generating income?

This one is as big as it is complicated. Before I give you an answer, I’ll have to find out some more information.

Do you have more than one pension?

What type(s) of pension are they?

What are the benefits and guarantees associated with each of your pensions?

How much State Pension are you entitled to?

Would you rather have a steady, fixed income or could you cope with fluctuations or want a combination of both?

Will you need any lump sums and when?

Ultimately, the main ways to generate income are drawdown income from your pension(s), buy an annuity or take lump sums from your pension.

More on your retirement options

Each of those options have upsides and downsides, but you don’t have to choose just one.

For example, with changes to the cost of living, the mix of income options you choose might sway more towards a guaranteed, steady income like an annuity.

Is now the right time to buy an annuity?

With interest rates at the highest level since 2008, annuities could seem like an attractive option. But they’re by no means right for everyone. You’ll need to dig a little deeper to understand if they suit your plans and expenses. Annuity rates can also change regularly.

Explore annuities

You’ll only be able to access your pension when you’re 55 or over (rising to 57 in 2028). Different pensions have different benefits and guarantees, so it’s important to understand these before you decide how to access it.

How does tax free cash work?

If you have a defined contribution pension, like a Self-Invested Personal Pension (SIPP), you can usually take up to 25% of it out in cash, tax free. You can normally do this as one big lump sum or as several smaller ones.

Taking your tax-free cash can form part of a solid retirement plan. However, it can be tricky to piece together if, when and why you’re taking it. The key thing to remember is, any money you take out of a SIPP means it’s no longer invested and no longer growing or achieving drawdown income.

If you’re 55 or over in 2023 and you’re planning to take some or all of your tax-free cash, you should consider the rising cost of living and whether that’s still the right course of action. It’s also important to regularly review your investments to ensure they are on track.

More on tax-free lump sums

You don’t need to work out the answers by yourself

Whether you’re planning to retire this year or in the near future, a financial adviser can explain your options, weigh up the pros and cons and come up with a plan you can feel confident in.

Although we’re in the middle of a cost-of-living crisis, you might still be able to retire on your terms. Our aim as advisers is always to make your money work hard for you and to give you confidence and resilience. Even in the face of a tough climate.

Explore retirement advice

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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