How To Guarantee The Retirement You Deserve!
As we get older, our thoughts are bound to turn at some point towards retirement. One of the biggest issues people have to deal with is whether they can afford to maintain their required lifestyle in retirement or when can they afford to actually retire.
It's a known fact that many will be working well into what should be their “retirement” years, but how can we ensure that we will, at some point, be able to choose between working or not?
The key (as with many things in life) is to plan properly and well in advance. A recent study by LV found that most people have no idea how long their pension pots will last. More concerning is that so few people take proper financial advice in this area.
So how do you plan properly for the retirement you want?
Firstly, it’s important to understand that retirement planning is about building a pot of assets that can be utilised to provide the standard of living you want in retirement. How that pot of assets is made up doesn’t really matter provided the pot can support your retirement needs. Such assets may consist of the traditional pension investment plans, ISAs, share portfolios, buy to let properties, etc., or any combination of these.
The key is to bring it all together in a financial plan that looks at the following:
- Where you are now?
- Where do you need to be to provide the retirement you want?
- What do you need to do to get there?
Taking each of these in turn:
- Where you are now - This looks at your current Personal Balance Sheet of assets and liabilities.
- Where you need to be to provide the retirement you want - This looks at projected expenditure needs in retirement and the income level needed to support this. For example, we often find that things like mortgages have been paid off by the time we retire, but we would want to be spending more money on holidays and leisure. All of this needs to be built into the retirement projection model.
- What you need to get there - Once you know your current asset position and where you need to get to, a plan can be formulated to ensure you get to where you need to be.
Here at Raffingers Wealth Management, the above is precisely what we look at when pulling together the holistic financial plan for the retirement you not only want, but that which you deserve. We call this Personal Cash Flow Modelling and, with the use of sophisticated software and the knowledge of our wealth managers, your tailored individual financial plan comes to life in the form of charts and graphs to visualise what the plan looks like. The plan is then reviewed annually to ensure everything is on track or if anything needs to be changed to meet the objectives. It's important to review the plan regularly as individual circumstances can change.
Other key points to note
Obviously, the earlier you start to plan the better. Investing over the long term with the compound growth effect can have a significant impact on your retirement asset pot.
Tax efficient investing through pension funds and ISAs can also boost retirement asset pots, and why not let the Government assist with this growth through the tax breaks offered.
It’s also key to ensure that assets are drawn down in retirement as tax efficiently as possible. Pension funds, for example, generally only provide 25% of the fund tax free. Drawings above this amount are taxed as income at your marginal rate, so planning is vital to ensure you are not suffering unnecessary higher rates of tax on such pension income!
Pension freedom introduced by the Government several years ago gives you the option to take the whole of your pension pot in one go… as tempting as this may be, such a route can be heavily taxed and therefore should be avoided if at all possible – again, proper financial advice is key.
State Pension
With the numerous changes that have taken place with the state pension rules over the past 20 years, it is no wonder many people are totally confused about when they are entitled to it and how much it will be. You can obtain a state pension forecast online at GOV.UK and it's worth obtaining no matter what age you are. If there are any gaps in National Insurance Contributions Records, this will highlight them at an early stage so corrective action can be taken.
Supplementing income in retirement
If you do get to retirement and find you are in need of supplementing income, then products like Equity Release may be an option. We are finding many people are looking to Equity Release to supplement retirement income as an alternative to downsizing or moving home.
Retirement planning may have been delayed in life or other circumstances may have impacted retirement planning, meaning the pot of assets is not sufficient to maintain the income requirements. We often find the main asset is the residential home which has significant equity, so why not make use of this! It is, once again, vital to take financial advice and to also involve the family in such matters as it can affect inheritance etc.
If you want to find out more about Equity Release, then go ahead and watch our recorded webinar all about Equity Release here:
As set out above, the key to all of this is to take proper independent financial advice to develop a holistic retirement plan tailored to your own individual circumstances, so you can enjoy the life you want in retirement.
If you want any further information on this or would like to set up a retirement review meeting with one of our wealth management consultants, please don't hesitate to email me at paul.dell@raffingers.co.uk or click here.