Six things you should do in the three years before retirement

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Retiring from work is a big step that will see you enter an entirely new part of your life. This means that it is something that you should prepare for carefully in advance.

Some aspects of retirement planning – such as saving for it – should be started early in your working life. However, there are other things that should be done closer to the finishing point, around three years before you actually retire.

These are the key things that you should be figuring out in those final three years before you stop work.

When do you want to retire?

It used to be that there was a set retirement age of 65. However, in the modern world there is greater flexibility, which also means that there is more complexity.

People are now able to start using their pension from around 55 years of age and more people are opting for a gradual path into retirement. That usually involves continuing to work on a part-time basis for a period or switching to a less demanding role within their company.

That means you will have to make the decision on exactly when you officially retire yourself. Factors that are likely to come into play when deciding include: how much you have saved up, the needs of your family and how healthy you are.

What do you want and how much will you need?

In the run-up to your retirement, you should be thinking seriously about what you want from it. Unless you know how you wish to live after you stop working, it will be very difficult to estimate how much money you are going to need.

Of course, if you are sensible you will have consulted with retirement planning specialists in Chester or wherever you live and put a plan in place years before. However, when the actual moment of retirement draws nearer, people sometimes find that what they want is no longer the same.

A Sun Life poll of soon-to-be-retirees discovered that five in six had unfulfilled dreams and ambitions. If that applies to you, working out a budget will be essential.

Break down your expected costs into essentials and luxuries and determine what each is likely to come to. This will give you an idea of how much cash will be needed to fund your basic living as well as any desires you have.

How much will you have coming in?

At this point you should work out exactly what your post-retirement income will be. If you are going to be getting a pension from the state you should request a statement to clarify the amount.

On the other hand, if you are paying into a private pension, you should also take steps to determine exactly how much you have in it. Then there may be investments and savings income courtesy of your financial planner.

If that applies to you, arrange a meeting with him or her to establish what income these will provide you with.

Do you have any debts?

Any outstanding debts should be paid off before you retire, if possible. Examples include bank overdrafts and credit cards.

It is better to clear these while you still have a regular income from your job and being able to eliminate them will leave you more money to put towards your post-retirement lifestyle.

Are you prepared for a rainy day?

Financial experts generally encourage people to put aside some money for emergencies – with the usual sum being their typical expenses over a three-to-six-month period. This money should be easy to access and will be used to pay bills and buy essentials if a crisis such long-term illness hits.

That advice also holds true for people who are soon to retire. There are still unforeseen problems that can occur after you stop working. For instance, your fridge freezer breaking down or your washing machine causing a flood, both of which will have to be paid for.

Having a rainy day reserve fund will ensure that you are not blindsided by such events.

Can you cut your tax liabilities?

Most people want to be able to leave some money for their relatives after they are gone and tax – particularly inheritance tax – is the enemy of that. It is charged at 40% of the value of your estate, which means that it will take a big chunk out of it if you are not careful.

At the moment there are two bands within which a person is not liable for inheritance tax: a nil-rate one for estates worth £325,000 or lower and a residence nil-rate one that will rise to £175,000. Among the ways in which you can cut your inheritance tax liabilities are leaving your whole estate to a spouse and making out a will.

Speak to a qualified financial professional if you want help with retirement preparations.

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