I apologise in advance for the tone of this piece, but find myself outlining some broad details which many will find akin to teaching grandma to suck the proverbial egg. I’m also conscious that having an image of the poster from the 1978 Robert De Niro film “The Deer Hunter” is stretching the point and I don’t wish to offend anyone with the image.

Let me begin with an obvious statement. We don’t get to decide when we are born. As a consequence we don’t get to decide when we become 65. If you are “lucky” you will be 65 at a point in time when the economic cycle is good, when the markets are rising. Many however, will find that 65 comes at precisely the wrong moment. Many people are playing a game of Russian roulette with their future. You can only control so much – so what can be done?

1. Review your pension and investments. It is vital that the investment strategy ties-in with your planned need to draw capital or income (or both) from your portfolio of whatever. This sounds rather obvious I know, but this is a very common mistake that people make. In essence, the closer you get to the day you need your funds most people will want to have a high degree of certainty and not worry about the state of the global markets. As a result the investments should all be in low risk/low return holdings, possibly cash. Most people do not appreciate that their pension or endowment or whatever has a range of funds, OK often very small, but never-the-less there is a range and invariably this includes low risk funds. In an ideal world you should gradually apply “investment brakes” in a 5-year run up to the date you need the proceeds.

2. Consider what retirement will actually mean for you… many people find the transition from work very difficult, some leave high profile positions and describe life in retirement rather like “being invisible”. There is nothing to stop you earning money/working after a certain age. Certainly much will depend on what the role is and your state of health, but this is something that is within your control. It is important therefore to reflect on what you are likely to do in retirement and what income (if any) you need. By way of example, Robert De Niro turned 65 in August 2008. To date he has worked on a further 14 films since then.

3. The State pension age is being moved around all over the place at the moment by Governments that are unable to deal with maths, economics and social planning. The amount of the pension is being “reviewed” as are the qualification rules. The principle is that everyone (UK domiciled resident taxpayers) should get a full State pension, but quite who qualifies and how much tax or exemptions apply is open to debate. I suspect that for poor reasons, the State pension will one day become means-tested.

4. Ignore the impact of inflation at your peril. Good planning means attempting to maintain your purchasing power. In reality basic utilities, transport and food costs all seem to rise faster than any government approved statistic for inflation (you have been warned).

5. The goalposts keep moving. This is of course meant to be a source of great joy to Financial Advisers and Accountants as it means important things have happened which need explaining. I don’t find myself feeling this way, indeed quite the opposite. The BIG new rules are pretty much these:

5.1 From April 2012 your pension funds must not be worth more than £1.5m. There are some exemptions but all come with a catch. This is known as the Lifetime Allowance.

5.2 The amount paid into pensions per tax year per person has altered. £50,000 is the allowance, but you can use up “2 previous unused years”. Those earning good salaries in defined benefit/final salary pensions also have a complicated formula to calculate the amount that their pension increased by over the year which will restrict their allowance and in some case exceed it leading to a further tax charge. This is known as the annual allowance.

5.3 The need to buy an annuity (annual income for life) has been abolished. That said, most people will end up with one. Whatever you do, DO NOT accept the annuity quote that your pension company sends you. There will be others that are MUCH better. An adviser will sort the best for you. It may be that you have a poor medical history – or smoke, this will lead to a better annuity as, to be blunt, you have less chance of reaching the average age of death.

5.4 If you don’t like the idea of an annuity (giving up some or all of your pension fund to an insurance company in exchange for an income for the remainder of your life and possibly that of your spouse) then you can also now defer taking the annuity – potentially for good (known as DrawDown). You can instead take an income similar to that of an annuity and leave the fund invested. The fund almost certainly needs to grow, so you will have to expose the fund to investment risk. The amount of income is determined by your age, gender, size of the fund and the Government Actuarial Department.

5.5 If you have guaranteed sources of income for life of £20,000 which can include your State pension but not earnings or income from investments, then you can strip all the fund as income if you wish, simply paying the relevant rate of income tax at the time. This is known as Flexible DrawDown The £20,000 limit implies that you won’t return cap in hand to the State once you blow the lot – or if you do, you won’t find a sympathetic ear.

6. Finally (yes I cheated a little with the 5.1-5.5 didn’t I) make sure that you have thought about what you want from life. Generally we don’t control the date of our death, so ask yourself some soul searching questions. Having an enormous pension pot that you worked hard to build, depriving yourself of many “good things” only to die three months into retirement is not a good result. That’s why a good financial planner will ask some pretty personal questions. As I have probably said many times before only “magic” in financial planning to to attempt to ensure that your money does not run out before you do. This of course will prompt some very deep and big questions.

A good financial planner is perhaps a little like Joseph – who managed to make sure that enough was saved  from the years of plenty for use in the years of famine, which ended up saving the entire Egyptian nation. A great financial planner will ensure that you handle the question – how much is enough? 

There is no need to play Russian roulette with your future.

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