Whether you are nearing retirement or it is several years away, it is never too early to start thinking about how you will finance your golden years. Even if you are already retired, you should regularly review your arrangements to ensure you continue meeting your retirement goals.
It might be that you enjoy spending time in Portugal and would like to retire in the sun, now or a few years down the line. Or maybe you are already living here and are unsure what your options are.
Whatever your situation, what do you need to think about to secure the retirement of your choice?
Even if retirement is a way off, there are certain things you need to consider – the earlier the better – to make sure you are on the right track financially. There may be steps you can take today to help make your dream retirement a reality. Questions you should ask include:
■ Will I be able to afford to retire when I want to?
■ What is the best strategy for withdrawing from my business or employment?
■ What options do I have for my pensions? Are they likely to change?
■ Will I be able to retain my existing wealth and assets?
■ Do I want to spend some or all of my retirement abroad?
Let’s say that you plan to retire within the next five years and move permanently to Portugal. You may have concerns about whether you can afford your preferred lifestyle without having to sell existing assets. You may not want to have to downsize your home, for instance, as you would like this to eventually pass on to your family. Perhaps you have a business to sell and are unsure how best to convert your years of hard work into a retirement nest egg. Then there are the complex residence and tax implications of living in a different country.
Here, professional financial advice can prove invaluable. An adviser can take a holistic view of what you have – your savings, investments, assets, pensions – together with what you want – your timeline, income requirements, legacy wishes – and an objective assessment of who you are – your circumstances, goals, risk appetite – to design a personalised retirement plan for you.
If you have already reached retirement age or stopped working, that doesn’t mean you should forget about retirement planning. After all, you could be retired for 30 years or more!
Regular reviews allow you to adapt your strategy to suit your changing circumstances and goals, such as incorporating new family members, addressing health issues or relocating. It also enables you to keep up with the ever-changing tax and pensions landscape, including new opportunities that could work in your favour.
Your pension options
Pensions are usually the foundations of retirement, so deciding what to do here may be one of life’s most important financial decisions. Pensions are complex anyway, but with greater freedom and choice than ever – and an increase in sophisticated pension scams – it is sensible to take expert, regulated advice.
For example, you might benefit from consolidating several UK pensions into one to provide a coherent, more cost-effective investment platform for your retirement income. However, this may not be the most tax-efficient approach if you live abroad; by receiving pension income in sterling, you are also exposed to conversion costs and exchange rate risk.
If you have a final salary (defined benefit) pension and have not yet started drawing from it, your provider may offer a high ‘transfer value’ in exchange for future benefits. While a large one-off sum could be reinvested to provide a more flexible, tax-efficient income, you need to take extreme care and be fully aware of the implications of forfeiting a guaranteed lifetime pension.
Britons resident abroad also have the option of transferring UK pensions to a Qualifying Overseas Pension Scheme (QROPS) tax-free. Doing so can unlock estate planning and currency flexibility that you do not get with UK pensions. Take care, however, as transfers to QROPS outside the EU/EEA invite a 25% UK tax penalty, which could be extended post-Brexit.
Remember: take UK-regulated, specialist advice before making significant pension decisions to protect your benefits and establish the most suitable option for you.
If moving to Portugal is on the cards, it is especially important to review your retirement strategy early. Not only will you need to consider your residence status and cross-border tax implications, you will need to adapt your estate planning to suit the very different local succession rules.
In any case, careful planning is the key to minimising taxation and maximising the available opportunities so that you can enjoy the retirement you want for as long as you need.
This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.
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Adrian Hook is a Partner of Blevins Franks and has been providing holistic financial planning advice to UK nationals in the Algarve since 2007. Adrian is professionally qualified, holding the Diploma for Financial Advisers. | www.blevinsfranks.com