Apart from a lack of savings, there are also a number of common mistakes people make when planning for their retirement.
Potential future income
Relying on a potential future source of income, such as inheritance and property, is one such pitfall people may experience. As life expectancy increases, relying on inheriting assets or wealth from a family member might be a mistake. Then there’s the inheritance tax liability you might be responsible for once part of the estate goes to you.
How much have you saved?
Another common mistake people make is losing track of how much they’ve saved, especially if it’s spread across a wide range of workplace pension pots. Consolidating your pension savings into one place is worth considering.
Tax relief
Are you also aware that you will receive tax relief on your pension contributions made from net pay? The Government will contribute a further 25% off your net contribution, up to 100% of your salary or £40,000 – whichever is lower.
If you earn less than £3,600, the maximum gross contribution you can make and still receive tax relief is £3,600. So, if you have contributed £2,880, the Government will top your contribution up to £3,600. If you only put away £1,000, however, the Government would only give you £250. In other words, the more you save, the more the Government gives you.
There are other methods to save money in a pension in a tax efficient manner, including ‘relief at source’ and higher rate tax relief on pension contributions, so talk to a financial adviser to get the full picture of what would work best for you.
Succession Planning
If you’re a business owner, you’ll not only have to consider your retirement but also a potential succession plan. If you run a family-owned business, it will be your responsibility to decide whether you wish to pass it on to future generations or sell it to an outside buyer.
Without proper planning, you could potentially have to delay your retirement until you’ve found a suitable successor. After running a business for a number of years, the last thing you’ll want is to end up pushing your retirement back by a couple of years.
The best way to plan your succession is by starting early, even as early as 15 years before your expected retirement. This will allow you to plan your key goals, a timetable for the transition and any contingency plans you may need should something go wrong.
Looking for some more advice about retirement planning? Get in touch! We specialise in planning exit strategies, helping entrepreneurs and business owners to consider all their options and formulate a thorough exit strategy business plan.
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