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The top 5 ways to improve your later life income

The top 5 ways to improve your later life income

By Coreena Dutton FPFS – Chartered Financial Planner

Good financial management and planning can always help things run more smoothly, no matter what stage of life you’re in, but it’s never more important than later in life. Whether you’re already retired or planning ahead for a few years’ time, there’s never a bad time to give your financial affairs a once-over to make sure that you are making the most out of your income for later life.

As you move into retirement and later life, your income and outgoings change. Perhaps you stop work, or at least ease off, and if you have a mortgage, you might finally pay it off. Your thoughts may turn to how you’ll pay for any long-term care needs and providing for loved ones after you die.

Here are the top five things you can set into motion now to improve your later-life income and have the retirement – or semi-retirement – that you’ve always dreamed of.

1. Making the most of your State Pension

If you have yet to reach state pension age, you could consider topping up your National Insurance contributions. You currently need 35 qualifying years on your National Insurance record to get the full State Pension which has recently increased to £185.15 per week. The number of qualifying years you have will depend on a couple of things.

Firstly, how many years you’ve been employed or self-employed and paid National Insurance contributions (NICs). And secondly, the number of years you’ve received National Insurance credits for. If you’ve worked abroad or had a career gap, you might not hit the full quota.

If you don’t think you’ll have 35 qualifying years by the time you hit State Pension age, you can often top them up by paying voluntary NICs.

Most people can make voluntary contributions for the past six-years. The deadline to make these payments by is 5th April every year. This means you have until 5th April 2023 to make up for any gaps for the 2016-17 tax year.

You could also consider delaying taking your State Pension. For every nine weeks you delay this, the government will increase your future income by 1%. It works out as roughly 5.8% for every year. While you’re getting an uplift, you’re giving up a series of initial payments, so you’d need to live for around another 17-years in order to break even.

If you’re working past retirement age and don’t need your State Pension straight away, it could make sense to wait. You’ll have a higher guaranteed income banked for when you need it.

2. Pay more into your personal pension

You can pay into a pension until age 75. The maximum you can pay in is either £3,600 gross or the amount you earn in a tax year if it is more than this (up to £40,000 annual allowance). You will also receive tax relief of 20% on your contributions (or 40% if you are a higher-rate taxpayer) . Where else will you get a guaranteed 20% (or 40%) on top of your money on day 1?

Even if you are already retired, no longer earning and younger than 75 years old, you can pay £2,800 from your savings into your personal pension every year, and the government will top this up to £3,600 using tax relief. That’s £720 free money every year up to age 75 – what I would call a ‘no brainer’!

3. Make your savings and investments work harder

The savings market is usually one where loyalty doesn’t pay, with some older accounts paying as little as 0.01% interest. And don’t assume that accounts targeted at over-50s will necessarily pay the best rates as you get older – they often don’t.

Rather than leaving your savings and investments in the hands of banks and building societies, paying minimal interest and going down in real terms due to inflation, you should consider getting independent financial advice. It’s important to make sure you have enough cash to call on in your time of need, but if there is any leftover that you don’t necessarily need to access within the short to medium term, there are many different investment options on offer which often have significantly higher returns.

One thing to be aware of is that this type of saving will generally involve an element of investment risk. However, an Independent Financial Adviser will walk you through this, looking at whether this route would be a suitable choice for you, and the benefits you may gain from this approach.

4. Fine-tune your pension

For most people, pensions will be a key source of income in later life. This may be a combination of the state pension and workplace or private pensions.

To make sure your entire pension pot is as healthy as possible as you approach retirement and beyond, you should look at taking advice from an Independent Financial Adviser. Since the pensions freedom rules changed in 2015, there are many different ways to access your pension, and it is more important than ever to ensure you get the right advice.

By reviewing your pension and investments together, your adviser can check you are drawing an income in the most efficient way and use cashflow modelling software to show you how long you can expect your pensions and investments to last to help you to budget.

5. Get a benefits check

Don’t assume you’re not entitled to any benefits. Each year up to £3.5bn of benefits go unclaimed by older people. So, even if you think you’re getting everything you are entitled to – it doesn’t hurt to check. Benefits could help you to pay for care, bereavement, bills or to maintain your independence.

There is no time like the present to make the most of every opportunity in planning for later life. An Independent Financial Adviser can look at all the options which are best suited to your needs to ensure you will have what you need in place at the time of retirement.