Retiring in 2017: what you need to know


You're retiring in 2017. You're free! You can now officially do anything you like. And that doesn't just go for how you spend your time. It applies to how you spend your pension too. A raft of changes since 2015 mean you are now free to do far more with a defined contribution pension than ever before.

Of course, the flip side is that you need to know even more than you did previously. There are ten essentials that anyone with a defined pension contribution needs to understand well before they quit work for the last time.

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1. Gather the information first
Financial education provider WEALTH at work says you need to gather information on all your assets, including every pension as well as savings and investments. That way you know exactly how much you have to work with.

2. Look at your state pension options
There are ways to boost your state pension, such as buying top ups - which apply for women born before April 6, 1953 and men before April 6, 1951. These offer far better value than any annuity on the market, and can increase your state pension by up to £25 a week - so is well worth investigating. You can also get a higher monthly pension by delaying when you take the first payments.

3. Consider what you expect to live off
This shouldn't a vague idea about the kind of income you'd like, but a reasoned expectation based on your actual living expenses and plans for the future. There's a useful calculator for this on the Money Advice website.

4. Consider very broadly whether what you have comes close to matching what you need
It's not a cheerful prospect, but if you're a long way short, then your plans to retire completely in 2017 may have to change. By working for a few more years, you simultaneously increase your income, and reduce the amount you need to save, so you can close the gap faster than you may think.

5. Understand all the options open to you
Either speak to someone or read up on the many different types of annuities available - plus income drawdown - so you understand what each one entails, the pros and cons, and the costs involved.

6. Appreciate it's not a black and white choice
You don't need to put everything into annuity, but you don't have to rule them out entirely. You could, for example, buy an annuity to cover essential costs, and consider drawdown for one-offs and discretionary spending.

7. Consider tax
Usually 25% of your pension is tax free and the other 75% is taxed as earned income. Consider how to withdraw the cash for the best tax benefits. So, for example, you may be able to take a smaller amount of money from your pension and more from ISAs, as this cash can be released tax free.

8. Check the paperwork
One common issue is that people don't keep their beneficiary details up to date. In 2015 the Chancellor abolished the tax payable on pensions left untouched if you die before the age of 75, so you need to make sure the cash goes to who you intend.

9. Consider getting advice
The cost of getting advice can be off-putting, but consider the value you get from ensuring you don't make a catastrophic or expensive mistake. It may well make the cost of advice one that's worth paying.

10. Be aware that you are a target for scams
Scams don't look like scams. They look and sound legitimate, which is why people are hoodwinked. They often have very professional looking websites and literature. Whatever you are planning to do with your retirement savings, check before you do anything that the company is registered with the Financial Conduct Authority (FCA)

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to - because while baby boomers know how to have fun - they also know how to save for the future.


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