Retirement is increasingly seen as a long journey to look forward to, not, as it once was, a relatively short period of life that spelt the end of the road. Today’s retirees are more busy, independent and curious than ever and have more time to settle into a life filled with endless possibilities.
But at a time when so much about retirement is improving, there is a cloud being cast: worry about how to afford the retirement we want. Many of us, including those of us who are in Russia, can expect to spend close to a third of our life in retirement, but without a long-term plan, we run the risk of outliving our financial security.
Progressive increases state pension ages mean that some of us will find it more difficult to realise our retirement ambitions.
And the fact that savings plan proceeds or a defined contribution pension pot can be taken in a variety of different ways only serves to make the decision on how, and when, to retire even more complex. When is the best time to take income; and do we take it all, or just part of it? Should we transfer our pension scheme as part of our planning?
These are the sort of questions which we will usually need to answer in our 60s. Yet, many of us would benefit from examining our choices much earlier in life.
Financial planning should address a range of issues, such as how long we are prepared to keep working for, our predicted life expectancy, our State Pension entitlement, how much income our savings need to provide, and how much money we want to pass on to loved ones. We may also need to consider how much to have in reserve that could be used to pay for care or medical bills. Do we expect our family to bear the financial or physical cost of looking after us when we are older?
Yet there is no natural trigger point during our working lives which encourages us to think about these issues, meaning that many of us will end up leaving it too late.
I feel there needs to be a much better way of supporting people in their mid-40s to mid-50s through an intervention intended to reflect the fact that your retirement income is now your responsibility.
The key to increasing early engagement is to get people talking about pensions as a social norm, like having a baby, starting work, or changing jobs.
I echo all financial planners and academics that support the introduction of a midlife Check-Up, under which individuals would review their financial health at an age when it is still possible to take reparative action such as increasing pension contributions, planning for inheritance, and reducing taxes in the future.
This idea has gained prominence since it was recommended by John Cridland’s “Independent Review of the State Pension age: Smoothing the transition“, which was published last year in the United Kingdom. The report highlighted that an independently prepared midlife Check-Up could be a useful trigger to encourage people to review current status and find gaps in their future plans. This will allow them to make realistic choices about work, health and retirement.
The report notes that as a first step a Mid-Life Check-Up could allow people to consider their existing plans, as well as provide signposting and guidance on where to get more help.
Cridland, who is a former director general of the Confederation of British Industry, proposes that this guidance is connected to financial advice. Once you have made up your mind on where and how you are going to spend your time, then you need financial advice to help realise your goals – mainly how to finance your future. Healthcare, housing, insurance for unforeseen risks and a steady income stream are the keys to success.