A step by step guide on getting ready for retirement
When the time comes to start thinking about your retirement - which should happen at least a few years beforehand - you will naturally want to ensure that you make all of the right decisions, so that you are as financially and emotionally prepared as possible.
Here are the most important steps to take when you are getting ready for retirement.
In recent years, the exact age of retirement has become more flexible than ever, with some people taking early retirement and others working well beyond State Pension age.
If you prefer early retirement, it's possible to take a private or a workplace pension from age 55, whereas you won't be able to take a State Pension until State Pension age. There are certain other important considerations - for example, might it be best to retire later to benefit from a larger pension pot?
Although this is by no means a compulsory step, those with a personal, workplace or stakeholder 'defined contribution' pension - by which a pension pot is gradually built up - are likely to have some or all of their money invested in funds.
If you are one of them, from about a decade prior to your retirement, you may decide to gradually move your money to less risky investments. Your own pension fund may do this automatically, but be sure to check first.
About two years before you are due to retire, you should figure out your likely eventual income in retirement by, for example, requesting a State Pension statement and finding out how much you may get from your defined benefit pension.
Should you get close to your retirement and find that your likely income is not as high as you had hoped, you will probably be unable to make many drastic changes at this late stage.
However, there is still some scope to maximise what you do get, such as by simply paying more into the pension pot or delaying the point at which you start taking money from it. While the former will help to increase your retirement income, the latter will decrease the amount that you actually need due to a shorter retirement.
It's always preferable to start your retirement with as few debts as possible, for the simple reason that as your income won't be as high as it was during your working life, any fixed repayments will account for a bigger proportion of it.
This is why you should add up the total amount that you owe across your credit cards, personal loans and/or mortgage, checking the interest rate that you are paying for each debt and prioritising the payment of those debts that have the highest interest rates.
Once you have finalised your decision to retire and when and how to do it, much focus will turn on the more 'glamorous' and day-to-day factors applicable to your new life, such as where you will live and how you will actually occupy yourself during your much-increased free time.
The emotional challenges of newly-retired life are not to be underestimated - many retirees report many difficulties in this regard when they suddenly need to fill their time in a whole new way.