Four of the most common retirement planning regrets, and how to escape them

In a recent study published by Money Marketing, participants detailed their greatest financial regrets from retirement.

We like to think of retirement as a simple time, but financially, there’s much to consider before you put down your tools and retire. It’s difficult to anticipate the risks you need to be aware of in later life, so taking the advice of others who’ve reflected on their experiences could be hugely beneficial.

Here are the four biggest retirement regrets individuals experience, and how you can escape them when you embark on your own retirement journey.

1. 30% of retirees would ensure they have greater guarantees on their income

Coming in first on the list of biggest retirement regrets, a lack of stable income was the top choice for 30% of study participants.

If you are approaching retirement, one of your biggest fears could be running out of money or generally having an unstable financial situation. Even if you’ve built up a substantial pension pot, you could wish to prioritise stability in your later years.

If so, there are plenty of options beyond simply buying an annuity (although this could be a viable solution for you).

For instance, you could consult a financial planner who, using cashflow modelling software, can help work out a long-term, sustainable retirement income drawn from sources including:

• Your personal pension pot
• Individual Savings Accounts (ISAs) and General Investment Accounts (GIAs) you hold
• The State Pension
• Defined benefit (DB) pensions, also known as final salary pensions
• Any inheritance you receive
• Other income sources such as buy-to-let properties.

What’s more, checking in on your bespoke retirement plan as the years go by can help ensure you have enough to live the stable, relaxed lifestyle you deserve in your later years.

2. 20% would take less of their income as cash upfront

Interestingly, 20% of participants said taking most of their income as cash upfront was one of their biggest retirement regrets.

Indeed, it can be tempting to draw a large lump sum from your personal pension pot as soon as you retire – but leaving much of your retirement income in cash can be detrimental for two key reasons.

Firstly, taking a large portion of your pension as a lump sum can increase your tax bill. Usually, you can draw 25% of your personal pension as a lump sum without paying Income Tax, but any amount above this percentage is generally subject to your marginal rate.

So, taking your pension more slowly could improve your tax circumstances in retirement.

Secondly, leaving your wealth in cash over the years can cause it to lose spending power.

An ideal example of this is the inflation rates seen in the UK across 2022 and the start of 2023. The Office for National Statistics (ONS) reports inflation reached 10.1% in March 2023, having remained in double figures since September 2022.

So, if you’d taken your retirement income in cash upfront in February 2016, when inflation stood at 0.3% according to ONS records, this cash would have “lost” almost 10% of its spending power in the last seven years.

Whereas, remaining invested and taking your income flexibly could be a more lucrative long-term option. It can be tricky to know how much income to draw each year, but luckily, taking advice from an expert can assist you in working out a sustainable retirement income.

3. 20% of retirees would take a more tax-efficient approach

In the decade leading up to your goal retirement age, it’s invaluable to begin thinking about tax efficiency in retirement as soon as you can.

With 20% of people claiming they’d “look for a tax-efficient approach” if doing their retirement over again, it’s clear that many do not pay enough attention to their tax situation when they transition from working to retirement.

Indeed, many aspects of your retirement income may be liable for Income Tax, including:

• Your State Pension payments (when combined with other income you earn)
• Withdrawals from your private pension pot
• Any income you earn from part-time work
• Your final salary pension.

On top of Income Tax, you may also pay Inheritance Tax (IHT) on wealth that is passed down from parents or grandparents. What’s more, you could pay Capital Gains Tax (CGT) on some asset sales too, including non-ISA shares.

So, if you are not yet retired and looking to avoid this common regret, it’s essential to anticipate how your tax situation will change in plenty of time before you retire.

With so many moving parts to your unique retirement plan, speaking with a Kellands financial planner could be a prudent move as you approach this milestone.

4. 19% would opt for greater flexibility

Finally, the study found that 19% of retirees would opt for greater flexibility if they had the chance.

Interestingly, you may notice a contradiction between participants’ biggest regret – a lack of stability – and their desire for greater flexibility. You might ask yourself: “can I achieve financial flexibility in retirement while maintaining stability?”

The truth is, this is a tricky balance to strike, but importantly, it is not impossible to take your retirement income flexibly while keeping your long-term goals in mind.

If you know how much you can afford to take as income each year, and are confident your retirement income will last a lifetime based on this strategy, you can be flexible within that long-term structure.

For example, if you have a DB pension in place, when combined with the State Pension, you could find that these form the bedrock of your retirement income. Additional income from your personal pension pot, shares, property, and part-time work could then be taken more flexibly – provided you have spoken with a professional about the impact these may have on your tax bill year-on-year.

Get in touch

If you’re approaching retirement and wish to avoid these four common regrets, get in touch today. We can help you prepare for a smooth, sustainable lifestyle in your later years. Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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