Whether you are ten years away from retirement, five years away or looking to retire this year, the need for advice is as important as ever. Although we are in challenging times, you are still able to benefit from our advice, which can make a real difference to the outcome of your retirement. Put simply, we can help you to understand what you have, what you want and what you need to do to get there.
Whatever your circumstances or expected level of income, as you are approaching and planning for retirement our advice can have a real and positive impact, especially during these unprecedented times.
Who we can help...
No matter which stage in the retirement journey you are at, your overall retirement funds will benefit from advice. It's possible you may need answers to lots of questions and often these answers can’t be found by going directly to the pensions provider. For those with a few years to go, there’s still time to plan for retirement and maximise future income by making the most of opportunities available to you now. For clients whose retirement is imminent, maximising tax allowances, understanding state benefits and ensuring you draw down from the correct 'wrappers' is key.
We split clients into two categories, depending on your life stage and the specific questions you may be asking now:
Planning for retirement - How do I know how much income I’m likely to need? You are a few years off retirement but want to use the next few years to plan and maximise your retirement benefits. This category also includes those who are approaching retirement and asking themselves 'when can I afford to retire?'. You are close to retirement but still have time to take action to maximise your benefits.
At retirement – Which assets should I use and how will they be taxed? You are looking to retire now and start drawing down from your funds. You may want to maximise future income potential or may be thinking about future long-term care needs or legacy and death benefits.
Planning for retirement: How much will I need? When can I afford to retire?
There are multiple tools and plenty of guidance out there to help you determine how much income you might have or need to save to receive your desired level of income. However, any review of retirement savings that we carry out would always start with a conversation about what you are really hoping for in your retirement.
For many, lockdowns may have prompted some serious thought around this, meaning now is a good time for us to help you bring these thoughts together to form a plan. We'll start by asking the right questions to really understand your motivations.
How much you need is going to be a combination of your personal circumstances and aspirations. We will help you agree on what is achievable, given your existing assets and ability to save more.
Many clients over or underestimate the amount of income they’ll need, but an amount of half to two thirds of your final salary is generally agreed. If who are five to ten years away from retirement, you should have a good idea of what your circumstances are likely to be (such as whether you will have paid off your mortgage, are still supporting children and what you think your retirement will look like). Will it be regular luxury holidays, frequent meals out and expensive hobbies, or are you content with the ‘Lockdown’ style of retirement consisting mainly of country walks and Netflix?
For those of you who are asking how much you need in retirement, any planning has to start with these sort of questions. We will determine what your fixed expenditure will look like and then have an honest and frank conversation about what your leisure time will look like and whether you realistically will be able to afford it. You may have other aspirations, such as gifting lump sums to children, supporting a charity or continuing some form of paid work – all of this can be built into your retirement planning.
At retirement: Which assets should I use and how will they be taxed?
The order in which savings are taken is key to reducing the amount of tax you pay in retirement. In fact, prioritising which savings are used up first can be almost as important as saving itself. We can help you understand which pot of money you should be accessing first, which can have a demonstrable impact on your overall wealth and income level.
Pensions are one of the most tax efficient investments and, from purely a tax efficiency perspective, should be accessed last - pensions fall outside of an individual’s estate for the purposes of inheritance tax, and death benefits can be a very beneficial part of the overall plan to defend family wealth over the longer-term.
Even if your only asset is your pension, we can still add value with advice (for example phased retirement may be something to consider).
What new risks do I face?
As retirement draws closer, you need to understand the additional risks you will face in the decumulation stage and put in place plans to mitigate these risks. The three main risks are:
Sequencing risk - The timing of withdrawals from a drawdown fund (whether they occur during a weak or strong market) can affect the overall value of your retirement. Taking money from your pension during a market downturn is more costly than withdrawing during a strong market. Poor returns early on in retirement can make it more difficult to recover from losses. The smaller the fund becomes, the greater the proportion of it is needed to provide the same level of income.
Inflation risk - Inflation (the speed at which the prices of goods and services are rising) can be doubly damaging in retirement because it can reduce the value of capital, as well as the purchasing power of income. Investing in the right funds and ensuring your portfolio is well diversified is key.
Longevity risk - People in their 50s and 60s often underestimate how long they are likely to live. Put simply, the longer you live, the higher the risk of your funds running out or being eroded by inflation. We can help ensure you are taking the right level of income and that you are invested in the right funds.
Get in touch...
If you have questions about your retirement, whether you are planning for retirement, approaching retirement or at retirement, please do get in touch. Our financial advisers can help you understand your options (and understand the jargon!).