As the end of 2025 draws closer, you may be thinking about the next stage of your life and looking ahead to the future.
We are not talking about your new year’s resolution, no, rather we think that contractors should be putting more thought into their retirement plans.
Retirement is always seen as an exciting chapter in your life as you put down the tools and get ready to enjoy all the fruits of your hard work.
However, for many freelancers and contractors it can come with some trepidation. A previous study by the Institute for Fiscal Studies in partnership with the abrdn Financial Fairness Trust, found that only 20 per cent of self-employed workers, including contractors, earning over £10,000 are saving in a private pension. In comparison, 80 per cent of employees earning over £10,000 are saving for their retirement.
Given the poor levels of retirement planning in the contractor community, we think it’s so important to get a plan in place that suit your needs once you are ready to stop working.
Build your retirement savings and pension pots
We know this is easier said than done but setting aside funds where you can will give you the best opportunity of having a healthy retirement pot.
Unlike regular employees, you are not required to submit money into a workplace pension, which for some may be part of the attraction of contracting, but putting nothing away risks you having less in old age and may force you to work longer.
Instead, seek independent financial advice and explore the market to find the best deals.
Try to start saving as soon as you can because different providers may have different deals and rates to offer you, plus your pension pot will then benefit from the impact of compounding interest.
It will help you understand the type of savings or pension options available to you, such as a self-invested pension plan (SIPP), which allows you to deposit flexible amounts of money based on your earnings.
Organising your expenditure
Once you decide to retire, your income from working will stop, meaning you will need to look at your outgoing payments.
This may include your everyday living costs like shopping, petrol and the occasional sweet treat.
However, this also includes potential mortgage payments and house bills, so it’s a good idea to have a clear picture of your outgoings and spot ways you could save money.
A recent study by the Pensions and Lifetime Savings Association (PLSA) found that, for an individual, they would currently require £1,117 per month for a minimum living standard and £3,658 for a comfortable lifestyle. This would mean building up a pension pot of around £540,000, to £800,000.
Understand your own financial needs and business plans
Retirement is all about you. It is your time to relax and enjoy doing whatever you please.
It’s important you understand your own finances before deciding if the time is right to retire. You may choose to set a financial target that you can live off when putting your plans in place.
Planning is the key to enjoying your retirement
You want to enjoy the next chapter of your life and planning ahead gives you the best opportunity to do so.
Whether that is holidays with your family, starting a new hobby or ticking things off your bucket list, a successful retirement plan can help those dreams become a reality.
A successful retirement plan allows you to do whatever you want without the unwanted worry about your finances.