Expat Retirement Planning

Securing a comfortable retirement means making sound choices while you are planning for retirement and when you reach pension age.

Income in retirement

Even if retirement is many years ahead, having an idea of how much income you will need in later life will help you to set aside enough savings today.

How much income you will need depends on your lifestyle choices and varies from person to person.

Cash flow forecasting is the key to calculating how much you require in retirement. Using a forecasting model, this amount can be worked out.

Saving for retirement

Retirement can easily last 20 years or more. Saving enough to fund a long period after work is costly. There are many different ways to save for retirement. For example, you could use individual savings accounts - or invest in a second home or buy-to-let property. But saving through a pension scheme has some advantages.

Joining a pension scheme through work makes sense if your employer will help to meet the cost by making contributions to the scheme on your behalf.

If you are topping up a work scheme, you might save through a personal pension plan. This is also an option if you are self-employed - in which case, you must bear the whole cost yourself of saving for retirement

Choosing your pension age

If you want to retire earlier, you will have to manage for a while without your state pension. On top of that, starting your pension early makes it more expensive because the pension has less time to build up and longer to be paid out. So you will normally have to save more each month to provide each £1,000 a year of pension that you want.

Phased retirement

Retirement does not have to be a cliff-edge where you are working one day and finished with work the next. Currently, around one in eight people over state pension age are still working, often part-time.

If you plan to carry on working into later life, you will not necessarily need all your pensions or other savings in one go. With phased retirement, you divide your pension savings into chunks and can start drawing a pension from each chunk at a different time. Some other types of savings and investments also give you this flexibility.

As you cut back on work, you could increase the amount you draw from your pension scheme or other savings and investments so that your overall income is maintained.

A phased approach to retirement also gives you a way of planning to deal with the effect of inflation. You can start retirement on a lower amount of income and gradually increase it later to compensate for rising prices.

Drawing a pension

You might have to take the pension from an occupational pension scheme all in one go, but with a pension plan you usually can phase in your retirement income.

When you want to start a pension from a segment, you would typically take part of the pension pot as a lump sum and use the rest to buy a lifetime annuity. An annuity is an investment where you exchange a lump sum (in this case, some of your pension pot) and in exchange get an income either for a set period or for life.

Alternatively, you could draw your pension from some or all of the segments using income drawdown. This is where you leave your pension savings invested and cash in part of these on either a regular or ad hoc basis to provide yourself with income or lump sums as you need them.

Again, you would typically take a lump sum but then leave the rest of your pension pot invested and just cash in bits of it as you need to draw off some income.

Income drawdown is especially suitable for phased retirement because you are not committed to receiving a set level of pension at regular intervals. You can choose when and how much to cash in (normally up to a maximum amount each year), but income drawdown is more risky and costly than buying an annuity because the maximum income you can draw may fall. This means it is usually suitable only if you have a large pension pot or other reliable sources of income.

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