How to plan for a happy retirement and get the best out of your pensions
Phil Bowler describes how you are never too young to plan ahead for your retirement.
Retirement should be seen as the longest holiday of your life. It’s precious time to spend with family and friends and a well-deserved reward for the decades spent in your practice.
However, the catastrophic impact of COVID-19 on professional and personal lives may have altered your targets. For some, the prospect of accelerating a retirement strategy has more appeal than ever. Others may now be scrutinising their finances and having to readjust expectations. The economic uncertainty we now live with has added extra layers of complexity to these crucial future-defining decisions.
This article aims to support your retirement strategy in three key areas:
- How to plan for your retirement
- How to fund your retirement
- Where to find expert and tailored advice.
How to plan for your retirement – plan early and often
Planning for your retirement has the potential to be perplexing and can create anxiety. It may be tempting to stick your head in the sand when it feels a long way off. However, you’re never too young to start planning for retirement. Modelling today how your finances might look in the future will put you in a stronger position to hit your goals, despite the prevailing uncertainty.
Pension planning may be further complicated if you’re a dentist who is managing several streams of potential income, while also thinking about the sale of your practice. Ideally, you will need to plan early to develop the right strategy. Revisit your plan regularly to make sure it’s working out.
Answer some fundamental questions
Take time to think not just about your future but also how it affects others close to you:
- What you want to achieve in your retirement
- When do you want to retire?
- What lifestyle are you hoping for?
- How much money will that require?
- Can you afford to retire early and still live the life you want?
- Are there financial implications for your heirs?
This will take you nearer the point where you can work out how much you should be saving now to achieve that retirement fund. This will begin to clarify whether you are on track.
Don’t overlook estate planning
Estate planning can be taken into account early on. Pension savings can be a really useful tool that give you options to mitigate inheritance tax liabilities for your heirs and the ability to pass on additional sums. You may also be able to draw an income from your pension pot while leaving the capital intact for future generations. Crucially, any pension fund left unused at the date of your death is held outside your estate for inheritance tax purposes.
How to fund your retirement
The good news is that, as a dentist, you have a range of pension options that offer many valuable benefits. But this also adds a layer of complexity as you decide how and when to access your pensions – and in what order.
It’s important to get to grips with your NHS Pension Scheme as it’s a valuable, guaranteed pension benefit that could provide the foundation of your retirement income.
Depending on your NHS commitment over the years, you may be relatively reliant on the scheme, compared to the level of your alternative future savings. But whatever your circumstances, you do need to understand what you stand to receive, when you can access your benefits and the implications of doing so at different times.
If you have a private pension plan (or plans) in addition to your NHS Pension Scheme benefits, make sure that you have a good picture of what these will deliver and when the right time is to access them. Most private pensions do not offer guaranteed benefits, so you need to take care with projections.
However, this additional income could be valuable and may also provide you with flexibility. Understanding the annual and lifetime allowance rules is also important to avoid private pensions causing you an additional tax burden.
An annual review of your private pensions is important since they don’t generally deliver guaranteed income. You need to consider the investment performance of your chosen funds and whether they’re still appropriate for your objectives, as well as checking fees and charges to ensure that they remain competitive.
As you get closer to retirement it’s worth thinking about switching to lower risk assets to mitigate the effects of market setbacks, as you have less time to recover before you’re due to begin accessing funds.
Don’t overlook your state pension when planning for retirement as it provides a valuable and stable foundation. You can request a state pension forecast online at www.gov.uk/check-state-pension or by calling 0800 731 7898. In certain circumstances you can make extra contributions to boost your entitlement.
Savings and investments
If you have spare income for savings and investment, think about how to use it in the most tax-efficient way possible. For example, individual savings accounts (ISAs) offer valuable tax perks and an opportunity to save £20,000 tax-free each year (2021/22) outside of your pension. These savings may be easier to access and are therefore worth considering as a tax-free way to supplement pension income. Also, as you start losing your personal allowance for income tax purposes when you are earning more than £100,000, then reducing that income by making pension contributions may help you make a tax saving. This can be really valuable as income between £100-125,140 (2021/22 rates) is taxed at 60%.
Other savings and investments such as property should also be considered. What role they will play in terms of future income? To what extent you can depend on them and also how they might affect your tax position?
For many dentists, selling your practice at its maximum value may be an important part of your financial planning. If so, think about how best to use the proceeds – will the capital pay off a mortgage or support children, or do you expect to manage it to produce income?
Where to find expert and tailored advice
High quality independent financial advice at any stage of your journey is invaluable. Talk to a specialist who understands the nuances of the NHS Pension Scheme and can develop a retirement strategy that is tailor-made for you. This is essential, as a specialist adviser will work to achieve your retirement targets. They will help you maximise tax efficiency, and review your progress at regular intervals. That could not only save you sleepless nights, but also many thousands of pounds.
The dental team at Chase de Vere combines its knowledge of dental career paths and financial planning expertise with a desire to ensure you receive personal, tailored advice that works for you.
Any dentist selling their practice will need careful planning prior to the sale. They will also need clear financial direction following the sale. Lily Head Dental Practice Sales can provide expert advice backed by many years of experience.
You deserve a happy retirement. But this is not the time to berate yourself if you feel you don’t currently have a handle on your planning. Or, if you lack clarity about what funding mechanisms are available to you personally. You are not alone if thinking about how you will fulfil your retirement expectations makes you feel uncomfortable.
The key thing to remember is that once you progress your thinking and develop a tailored plan hand-in-hand with the experts, you will feel a weight lifting off your shoulders. The aim is that you’ll be left to concentrate on today and look forward to tomorrow.
This article is part of Denplan’s Expert Network series. Visit www.denplan.co.uk/denplan-expert-network for more articles. T