Retirement planning – What should I be thinking about?
The Office of National Statistics estimates that a 45 year old in 2021 has a 1 in 10 chance of living until 100. However, according to Scottish Widows’ 2020 retirement report, 17% of Brits are not saving at all for later life with more than a fifth saying they don’t think they’ll ever be able to afford to retire.
With so many factors in play, what is the best way to plan for your retirement? Every client is different, and your retirement needs will not be the same as someone else’s. However, ensuring that you have a robust financial plan both before and during retirement is key to meeting your goals.
We have set out below some common considerations for clients’ thinking about retirement and how our wealth management team can assist you on your journey.
Do I have enough to retire?
Many clients remain unclear about their costs in retirement and how best to meet them. In 1990, £50k of retirement income could be provided by approximately £350k of capital. By 2000 this had increased to £625k and by 2012 it stood at 833k. Today, as a healthy individual seeking to retire at 65, to generate £50k per annum you would need a capital sum in excess of £1 million. By using our cashflow planning tool we would work closely with you to quantify your needs in retirement and understand whether it is obtainable. Importantly, we would stress test these to provide you with additional levels of comfort.
Is my pension enough?
Gone are the days when your retirement needs would likely be met by just your pension. The decimation of defined benefit pensions removed secured income in retirement for many. While at the same time, there has been a systematic decrease to both how much you can save into a pension annually and how much your pension can grow to over its lifetime. The consequence of this is that many people will need to look to more than just their pensions as a source of financial security. We encourage clients to think about generating their retirement income across their different investment “pots” and will work with them to achieve this.
How much can I take from my portfolio?
Historically the rule of thumb was that it was safe to withdraw 4% from your portfolio on an annual basis without fully eroding the capital. Research by the Pensions Policy Institute suggests that in the current environment 3.5% is safer and should give you a 95% chance of not exhausting your savings. However, while this remains helpful guidance, the reality is most people’s circumstances are more complex. We will work with you to agree on a withdrawal strategy that is suitable for your unique circumstances and keep this under constant review updating it on an annual basis.
Am I being tax efficient?
While it is essential to understand how much you can draw for your investments to build a sustainable retirement, it is equally as important to ensure you are being as tax efficient as possible. With an ever-changing legislative environment, this is often difficult to manage. What made sense one year might not make sense the next. We will work with you to ensure that you have a strategy in place that minimises tax friction and we will revisit the income drawdown strategy annually to ensure it is informed by the most current legislation.
How should I be investing?
The investment strategy you employed while building your wealth might need to be adjusted as you move to drawing from your portfolio. As your investment horizon shortens, your capacity for risk reduces. However, factoring in your required level of risk to meet your objectives is imperative. We will work with you to understand “why” you are investing to better inform “what” the investment strategy should be. In this way, we can execute an investment strategy that takes into consideration your wider financial planning objectives.
Can I minimise inheritance tax?
Ex-Chancellor, Roy Jenkins famously remarked that “broadly speaking inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”. Essentially, the point he was making is that there are several options available for an individual to mitigate the level of inheritance tax paid. How much do you want to leave to your loved ones or charitable causes? Can you afford to do this in your lifetime and minimise inheritance tax? While the priority in early retirement should be ensuring that a plan is in place that does not prejudice your own financial security, it is also an opportunity to begin thinking about estate planning. We can work with you to quantify any potential inheritance tax you might be liable to, to understand what levels of gifts would be affordable and your potential options to mitigate inheritance tax.
How Gerald Edelman Wealth can help
Retirement planning is becoming more and more complex. Our approach is to look at all parts of the jigsaw and bring it all together. As a full-service accountancy firm, we are also able to leverage the expertise of our colleagues, above all in our tax team, to ensure all your needs are met.
The first step towards your financial plan is an initial meeting, at our cost, to explore your current position and aspirations. To arrange your initial consultation, contact our team today.
This article is only for general informational and educational purposes. It is not offered as and does not constitute financial advice. You should not act or rely on any information contained in this article without first seeking advice from a professional. The Financial Ombudsman Service is available to handle individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service, please visit this site. Gerald Edelman Wealth Limited is an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority.