Retirement For The Self-Employed

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Time famously waits for nobody.  Growing up may be optional but growing old is a reality.  This means that everybody has to plan for it.  If you’re a paid employee, the chances are that your retirement arrangements will be linked to your job.  If, however, you’re self-employed, you’re on your own.  Here are some self-employed retirement points to consider.

You need to have a feasible plan for retirement

Maybe you love your job and never want to retire from it.  That’s great.  There are some people who literally work right up to their last breath and love every minute of it.  At the same time, it’s very risky to bank on your being able to work to your last breath.  What’s more, you may find that your outlook changes further down the line and you discover you’d like to retire after all.

With that in mind, consider what your dream retirement would look like if you were to go down that path.  For example, where would you live?  How would you get around?  What would you do with your time?  Use this to get a ballpark idea of how much money you’ll need to fund your retirement.

Forget the state pension

Sadly, there are just too many uncertainties around the state pension to rely on it as a means of funding your retirement.  Abolishing it completely would be a controversial and politically charged move.  That said, it cannot be ruled out.  After all, the change to Universal Credit was hardly without controversy.

Qualifying criteria are clearly negotiable.  For example, the age at which state pension can be claimed has already been changed recently.  Similarly, the amount you’ll actually receive is a very open question.  Officially, the triple-lock has been “suspended” rather than cancelled.  There is, however, no guarantee that it will be reinstated at all let alone permanently.

Dealing with debts may have to be a priority

Counterintuitive as this may seem, if you have consumer debts, it’s probably more important to pay them off than to save.  Run the numbers and see if you could earn more from investment than you would pay on the debt.  With products such as credit/store cards and personal loans, the answer is likely to be “no”.  If that’s the case, then focus on paying them off.

Remember that dealing with debt will contribute to funding your retirement.  It will lower, if not eliminate, an expense.  As the saying goes, money saved buys as much as money earned.

Look at tax-efficient savings vehicles

Pensions and Lifetime ISAs are not the only ways to save for retirement.  They are, however, currently the most tax-efficient options.  Pension contributions are made out of pre-tax income.  LISA contributions are topped up by the government.

Both pension plans and LISA have restrictions on their use prior to your retirement.  After you reach retirement age (this may be different depending on your plan), however, the money is yours to use as you please.  You will, however, still need to think about the tax implications of withdrawing funds from them.  That said, this is a much better problem than wondering how you’re going to fund your retirement.

Think carefully about your home

Your retirement is a chance to reassess your lifestyle.  This includes where you live.  Your three main options are to stay where you are, downsize (or move to a more affordable area) or switch to renting.  It’s important to consider all three options carefully before you make a decision.  It may not be a final one but it could have long-term implications.

In particular, do very thorough research before you sign up for an equity-release contract.  Equity release can be a great way to help fund your retirement.  It does, however, often have significant implications.  It’s therefore strongly advisable to get professional advice before you commit.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes that cannot be foreseen

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone.  This is a referral service.

 

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