What New Year’s financial resolutions will you make this year?
As the new year approaches, it’s the perfect time to reassess your financial goals, especially if you’re nearing retirement. With careful planning and a few strategic adjustments, you can ensure a secure and fulfilling retirement. Here are six essential financial resolutions to consider as you transition into this exciting new chapter of your life.
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Now let’s take a look at an in-depth look at the six financial resolutions for those approaching retirement.
1. Review your retirement savings and investment strategy
The first step towards a successful retirement is to assess your existing savings and investment portfolio. Take stock of your pension pots, ISAs, and any other investment accounts.
Are you on track to meet your retirement income goals? Will you have enough money to enjoy the retirement you’re looking for?
For those in the UK, the State Pension provides a foundation, but additional savings are crucial to maintaining your desired lifestyle.
Review your asset allocation and risk tolerance.
As retirement nears, it may be prudent to shift towards more conservative investments, reducing exposure to volatile markets. Speak with a professional adviser to ensure your strategy aligns with your timeline and financial goals.
2. Maximise pension contributions
Take advantage of your remaining working years to bolster your pension savings. In the UK, you can contribute up to £60,000 annually (or 100% of your income, whichever is lower) into your pension under the current Annual Allowance, and benefit from tax relief.
If you have unused allowances from the previous three tax years, the carry-forward rule allows you to make additional contributions.
This is a particularly effective strategy for high earners looking to minimise taxable income.
3. Make the most of tax-efficient investments
Tax efficiency becomes increasingly important as you approach retirement. As a result, you’ll be pleased top know there are many tax-efficient investments available in the UK, covering pensions, ISAs and Venture Capital Schemes.
When it comes to investing, review how your income will be structured to minimise tax liabilities.
For example, withdrawing from ISAs is tax-free, while pension withdrawals above the 25% tax free lump sum allowance are subject to income tax.
4. Create a detailed retirement budget
Understanding your future expenses is crucial to financial stability in retirement. Create a realistic budget that accounts for essential costs such as housing, utilities, and healthcare, as well as discretionary spending like travel and hobbies.
Consider how your expenses might change over time. For instance, commuting and work-related costs may decrease, but healthcare and leisure spending could rise.
Use this budget to estimate how much income you’ll need annually, and compare this to your expected pension and savings.
5. Review and update your estate plan
Approaching retirement is a good time to revisit your estate plan. Ensure your Will is up to date and reflects your current wishes. In the UK, having a will can significantly ease the probate process and reduce potential disputes among beneficiaries.
Consider setting up a Power of Attorney for financial and health decisions, giving someone you trust the authority to act on your behalf if you become unable to do so. Additionally, review your pension beneficiary nominations to ensure they’re current.
Speak to a financial adviser about strategies to avoid inheritance tax (IHT), which applies to estates exceeding £325,000, with the possibility of increasing thresholds if certain conditions are met.
6. Plan for long-term care costs
Long-term care is an often-overlooked aspect of retirement planning. In the UK, care costs can quickly deplete savings, with residential care fees averaging £40,000 to £50,000 per year.
There are options, including savings, long-term care insurance, or equity release. Speak with a financial adviser to evaluate the most suitable options for your circumstances and consider incorporating these costs into your overall financial plan.
New Year’s financial resolutions – quick summary
The years leading up to retirement are critical for solidifying your financial future.
By implementing these six resolutions, you can approach retirement with confidence and peace of mind. While this is a starting point, consulting a qualified financial adviser is essential for personalised advice tailored to your unique circumstances and goals.
Take control of your financial future this new year, and enjoy the retirement you’ve worked so hard to achieve.
