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Personal Finance - Retiring in good financial health

In the last of this five-part series, Phil Mileham has money-wise advice for GPs nearing retirement.

Plain sailing: have the financial plans in place to enjoy your retirement (Photograph: Istock)
Plain sailing: have the financial plans in place to enjoy your retirement (Photograph: Istock)

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As you approach your 60s - or well before then if you are intending to hang up your stethoscope early - it is time to think hard about your financial needs when you have retired.

No doubt you will have worked hard throughout your career and, possibly, while bringing up a family. Hopefully you have a clear picture of the kind of lifestyle you want when you finish work but the question is, will you have enough income to fund it?

Review your pension benefits
So what should you consider as your career starts drawing to a close?

The good news is that your NHS pension income is protected against inflation and will rise annually in line with the Consumer Price Index, the government's preferred measure of inflation. It is still sensible though to review your pension benefits with a financial consultant with an in-depth understanding of the NHS pension scheme (NHSPS) so you fully understand how much annual pension to expect and the other options and entitlements available to you.

For example, GPs will generally receive a tax-free lump sum on retirement. This may be a substantial payment which you might want to spend prudently, perhaps to pay off any outstanding mortgage or loans so that you can enter retirement debt-free.

You should ensure that any remaining money is invested wisely to avoid the value of your savings being eroded by inflation. Consider putting it in a tax-efficient savings account such as an individual savings account (ISA).

Other income sources
You will probably have other sources of income in retirement through investments or private pensions, for example. It is also possible that you will not retire completely at 60 but choose to wind down the number of weekly sessions you do.

You may choose to take advantage of 24-hour retirement: the minimum period that a GP must retire from the NHS in order to take their NHSPS benefits. You can then return to work although you must not work more than 16 hours for the NHS in the first month after this break.

Unlocking your income
When planning your retirement, assess all sources of potential income and remember that you may need to release money at different times. It is not just your day-to-day living costs that you need to consider if you want to provide for your children and grandchildren, for example. And further down the line, you may have to fund cost of long-term care.

If you have paid into a private pension during your career you have a number of options on how to unlock income from it. You can opt for income drawdown directly from this pension pot or consider buying an annuity. Income drawdown offers more flexibility but can be riskier than buying an annuity. With annuities, it is important to shop around for the best deal as annuity rates can vary significantly depending on the provider.

Flexible pension drawdown
A new 'flexible' pension drawdown was introduced on 6 April 2011 for private sector plans such as personal pensions. This allows people who have a lifetime annual pension income of at least £20,000 to access the whole of their drawdown pension fund as income with no annual withdrawal limit.

The withdrawals made are taxed as income at the individual's highest marginal rate so will need careful consideration.

Passing on your estate
You should consider setting up a lasting power of attorney to give someone you trust authority to act on your behalf in relation to your health and welfare decisions and your financial affairs in case you lose the capacity to do this yourself as you grow older.

Making such an arrangement now can save your nearest and dearest an enormous amount of pain (and money) in the future.

As part of inheritance tax planning, you may have already considered gifting money or setting up a trust as a tax-efficient way of passing on assets after your death.

However, it may also be worth considering other options to safeguard your family's income in later life. This could include setting up a stakeholder pension for your children or even grandchildren.

If you have acted on sound financial advice throughout your career you should be able to enjoy the long and happy retirement you have worked to achieve.

  • Phil Mileham is national sales manager with Wesleyan Medical Sickness, www.wesleyan.co.uk

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