Retirement is a bit of a paradox. For most of us we look forward to retirement as a happy release from work, a time when we can put our feet up and make the most of a long awaited release from the treadmill. However, once the umbilical of a regular salary is cut, the realisation that the only income you will have is pension money can be quite daunting.
During our working lives most of us will have been able to take out loans, mortgages and credit cards on the strength of full time employment and regular salary. Few banks or financial institutions lend to retirees unless they have sufficient assets with which to use as collateral. The best way to prepare for retirement, to make pension money go as far as possible is to shed the burden of any debt to become financially independent.
The following tips and suggestions are presented here to help you navigate the sometimes ‘choppy financial waters’ of retirement to find a safe haven from the storms created by forces which are beyond your control.
If you have been a regular saver during your working life, why not carry on with the habit. Often it is possible to find savings accounts and mutual funds which offer preferential rates for savers over retirement age. If you have invested in an ISA in the past, why not carry on with the habit. Providing you stick to the rules, an ISA will pay out at the end of the term with no capital gains or personal tax liability.
The stock market is a good place in which to park your money, but always seek professional advice. The value of investment can go up and down as we’re constantly reminded. Blue chip stocks and government bonds are usually a safe bet; earning income from annual dividends may be subject to tax liability, so sound financial advice should be sought to minimise any potential liability.
Always have an emergency fund. At the time of writing the country is in lockdown as a result of measures taken by the government to combat the COVID 19 outbreak. Many people have lost their jobs and income. For those with an emergency fund set aside, it offers breathing space to find a way forward, to be able to continue paying bills and buying essentials. For those among us that do not have an emergency fund set aside, it will surely have focused the mind and caused varying degrees of stress and anxiety.
In retirement, just as in life while you are in work, an emergency situation can arise without prior warning, often with devastating results. Be prepared – the worst may never happen, but if it does, you have a safety net to catch you.
Start changing your lifestyle
As you close in on retirement you should perhaps consider your lifestyle and what changes you may have to make. Pensions seldom match salaries so disposable income may be reduced by a wide margin. Is your car reliable; would it be worth buying a new car, thereby avoiding expensive potential repair and maintenance costs? If you enjoy eating out regularly, that may be something which you will be unable to enjoy as often as now. However, eating in is cheap and you won’t have to put up with the annoying loudmouth stranger at the adjacent table.
Pay off debt
Paying off any debt which is outstanding is paramount. Credit card debt, loans, overdraft and mortgage debt should be paid off before retirement. Credit card debt and overdraft debt often incurs draconian interest charges, money which would be better in your account than in the coffers of the bank or other lending agency.
However, paying off debt isn’t something which can happen overnight. It will need to be planned for and should commence at least five years before you retire. Do not consolidate debt with a loan; it is false economy and will merely add to your debt burden. Pay off as a priority credit card and overdraft dept; these two examples will probably incur the highest interest rates. If any loans are outstanding it is often possible tot get a settlement figure which is far less than the amount outstanding. If you can pay off a loan – or two – at a reduced sum, do so, it is in your best interests.
Buy a property
Regardless of the up and downs of the economy, buying in to property has always been seen as a sound investment. Property prices seldom deflate over the long term. While economies rise and fall with regularity, property prices are seldom if ever hit badly. Compare property investment returns over a similar period to stock market returns and you’ll find the former is always ahead. Whether the property you buy is for your main residence or is an investment property to rent out and earn income, it will always be there.
Buying for retirement is a slightly different kettle of fish. Maybe you’re considering downsizing, in which case to may have a tidy sum left over from your old property sale as a result of buying a smaller property to move in to.
Conversely, if you are selling, for example, a property in London to move to a property in, say, Devon, the sum you have over may be considerable given the disparity in property prices outside of London.
Additionally, if you take the route many retirees take and end up relocating abroad, the sum total of the money left over may be even greater. It could be a way of paying off any outstanding debt if you were unable to do so before retirement. It’s also popular among expats.
One of the most affordable countries to which to relocate is one of the smallest – Malta. Property prices in Malta compared to a like for like in Spain, Portugal or Italy for example is cheaper by up to forty percent real value – stats courtesy of Frank Salt Real Estate. Properties in the country are very affordable, especially in comparison with other European countries.
As retirement looms, making plans is essential to your financial wellbeing and security. The safety net of pension will only go so far. If you plan ahead the pension will go much further and