Retirement Planning forms a part of Financial Planning, with a specific focus on retirement and pensions, but also any other resources you may have. This can include savings, ISAs, investments, shares, other property, state pensions, inheritances. Fundamentally you need to think about three questions:
- When you do you want to retire? (age 55, 60, state pension age, later, never)
- How do you want to retire? (completely, gradually, change career, set up a business)
- What will you do when you retire? (or How much will you spend in retirement?)
With this information we produce a cash flow plan to show you how long your money will last, taking account of all the provisions you have already made. We talk through your options and agree a way forward. We also review your existing pensions, investments and state pensions to make sure that they are working hard for you. Where charges are excessive or funds inappropriate for your risk tolerance or values we recommend changes, explain our reasoning and then implement those changes. Provided you become a regular client then we review your progress each year, making sure you are on track for the retirement you desire.
Four stages of retirement planning:
1) Early years – how much should I save?
You are under age 55 and maybe have a number of different types of pension from past and present employers. As an example we have one client who currently has 13 pension plans across seven different pension types – each with their own set of rules regarding contributions, investments, charges, retirement age, retirement options and death benefits. This is quite unmanageable and so we are working on reducing this to nine plans across six pension types. Further rationalisation at this point would incur significant transfer penalties or represent poor value for money. Each pension is looked at on its own merits and the pros and cons of transferring or switching funds are discussed and agreed with you before proceeding.
Maybe you are self employed or an owner Director of your business with some old pensions but your focus is on building your business. We love to convince pension sceptics of the many great benefits of pensions for business owners, both in helping their business grow, drawing a flexible income and then later in passing wealth to family members tax efficiently for generations to come. We are currently working with an accountant on advising his client to sell some commercial land to his pension scheme, minimising capital gains tax, and releasing the capital tied up in the land to pay off his Director’s loan. The rent can then be paid into his pension free of income tax. Take a look at our Client Stories for further ideas.
2) Pre retirement – cash now or later?
You are at least 55 years in age and realise that you can draw on your pensions, even though you are still working. Should you take your tax free cash to pay off your mortgage, or buy that dream car, or that overseas holiday, or maybe you would love to help the kids move out by gifting them a deposit? Cash flow planning shines a light on this, showing you visually in graphs and in numbers what impact that will have on your retirement. You can change the dates and amounts at ease until you are happy with the outcome.
3) At retirement – what are my options?
You are looking forward to retiring in the next 12 months, perhaps you have received your pension wakeup pack. Now is the time to seek some independent financial advice as decisions made at this point can affect your income for the rest of your life. There are many options to choose from and often a mix of options is the best choice. You can obtain enough guaranteed income to pay your regular bills whilst keeping some flexibility and investment growth potential for luxury purchases or passing on wealth to family members on your death.
This is the one occasion in life when all those health issues or vices such as smoking and excessive drinking can work in your favour, by applying for an enhanced pension annuity which takes all these factors into account. It is also the time to re-check your state pension records and pay enough National Insurance credits to maximise your state pension.
4) Post retirement
For those who choose to draw on their savings and pension income whilst keeping their monies invested then annual reviews are necessary to make sure your money will last your retirement years. Often we recommend increasing spending on family holidays and leisure activities with those you love, whilst you keep in good health. You may also wish to take steps to reduce the size of your taxable estate on death, take a look at our Estate Planning page.
A pension is a long-term investment. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income will be affected by a number of factors at the time of taking benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.