Category: Retirement

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Saving for retirement: what’s the magic number

The fact is, most of us are simply not saving enough to enjoy a similar lifestyle to our working days in retirement. A ‘retirement reality’ report from insurer Aviva shows that nearly 1 in 4 employees believe that retirement will be a financial struggle.

There are plenty of legitimate reasons why we don’t save enough – more immediate financial concerns will naturally take priority. You can’t save for tomorrow, for example, if it means forgoing your mortgage payments today. A lack of financial education also plays a big role. 85% of young adults, when surveyed, revealed that they wish they had been taught more about finance management through their school and university careers.

The Government’s auto-enrolment workers’ pension initiative has helped and there are around 1 million people saving for their retirement for the first time ever, as a result, but how do the numbers add up? The minimum auto-enrolment contribution rate is 5% of annual income, and despite more than half of workers believing this is the recommended rate of saving, it’s far from it. The generally accepted figure among experts, if you wish to maintain a similar lifestyle in retirement, is a contribution equal to 13% of your annual income. Some of this deficit will be made up by employer’s pension contributions, however, we’re still looking at a wide gulf between actual savings and those that are required.

Investment house, Fidelity, has devised a system it calls the ‘Power of Seven’, consisting of a number of savings goals. Ultimately, it suggests that to comfortably retire at 68, you should have saved the equivalent of 7 times your annual household income. So if you were to retire with a household income of £50,000, you’d want a pension pot saved of £350,000. The exact figures will differ from case to case, so it’s recommended to use an online pension calculator to understand your personal situation and check it regularly to keep yourself updated.

There are steps you can take to bolster your pension pot. It’s down to you to take responsibility for your finances, and even small steps like being a member of the works pension scheme and using tax friendly Savings Accounts can be helpful. If you receive a pay increase, perhaps allocate half of it to your savings or investments and enjoy the other half now. As tempting as it can be, it’s important to foster self control to turn down opportunities for frivolous spending – think about tomorrow and give yourself more options in your golden years.

Sources
https://www.thisismoney.co.uk/money/pensions/article-6449851/How-need-squirrel-away-golden-retirement.html

Pension drawdown in an era of long life expectancies

Pension drawdown in an era of long life expectancies

Retirement planning means taking into account a whole host of factors. You have to navigate tough questions like, ‘What will the impact of inflation be?’ or ‘When will interest rates start to creep up?’

As well as these, there is another question that must be considered: ‘How long will you live?’

This question is unanswerable but figures suggest that some pensioners might be getting this figure very wrong when it comes to drawdown. Many are running the risk that their retirement pot kicks the bucket before they do.

Research by AJ Bell indicates that 50% of people aged 55-59 who’ve entered income drawdown say they have only enough savings to tide them over for 20 years. This might sound like a long time but when you consider that average life expectancy for this cohort of savers is 82 for men and 85 for women, many risk running out of money.

The reality is that none of us know how long we will live. When you factor in that there’s a fair chance that a few of AJ Bell’s respondents might live to 90 or even 100, it’s clear that many pensioners could be drawing from their savings at an unsustainable rate.

Withdrawal rates

AJ Bell also asked their respondents about their withdrawal rates. They discovered that 57% of people in the 55 to 59 age bracket are withdrawing more than 10% of their fund each year. This reduces to 43% of people in the 60 to 64 age bracket and 34% of people in the 65 to 69 age bracket.

While many use their early retirement to travel and embark on their larger plans, over-withdrawing early on could mean that they end up without the money to cover costs that arise in later life, such as care costs.

The average size of the fund in AJ Bell’s questionnaire was £118,000. Based on this, a 10% annual withdrawal of £11,800 would result in the income lasting just 12 years. However, if the withdrawal is reduced to 6% of starting value, the same fund might last for 29 years. These estimations don’t take into account the detrimental impact of inflation, which currently runs at 2.7%.

Working out a sustainable drawdown rate is difficult and depends on a whole range of factors. Your regulated financial adviser or planner should be able to give you your best chance of a good retirement outcome.

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Sources
https://www.retirement-planner.co.uk/232530/tom-selby-life-expectancy-guessing-game

4 ways to live a happy retirement



Retirement should be the time of your life. No more early alarm calls, no more commuting and no more carefully counting your holiday allocation. Instead, you have the freedom to do exactly as you please. Yet retirement might not always work out as the idyllic move to a cottage by the sea it’s billed to be. Some people, in fact, dread retirement and feel they’re being put out to grass. They fear they’ll miss the structure and companionship that work gives. Think of it more as ‘change’ not ‘old age’

Think of it more as ‘change’ not ‘old age’

Retirement is automatically associated with old age in people’s minds. The very word conjures up images of people sitting around in retirement homes in their slippers, watching daytime T.V. But this is far from the truth. Old age, today, encompasses a vast span of years, from 65 to 100. There are many active retirees living life to the full. And if you think how much the average person’s life changes between 25 and 60, just think how many possibilities could lie ahead in the same timeframe. Going from work to retirement is a huge transition – yet people cope with many other major transitions during the course of their lives; having a baby, changing jobs, going through a divorce, moving house. The key is to use your resilience and strength from previous times of change to help as you move into retirement. Don’t see it as entering old age, see it more as a time of embracing life’s opportunities.

Don’t just be concerned about the money side of things

That may sound a curious thing to read in a financial newsletter. And pensions will form a key part of any more retirement planning. There’s also no denying that pensions can be complex so it’s important to find the right solution for your situation whether it’s taking an income or accessing a lump sum. But the financial side of things is much wider than just your pension. So take time to think about what your ideal lifestyle would look like. Think about some proper financial planning. What are your goals and ambitions for retirement? Are your current finances on track to help you reach them? The money is just an ends to enable you to live a happy retirement and find a new purpose.

Be clear in your mind what you really want to do

In today’s world, where such value is placed on career status, retirement can be seen as an end rather than a new beginning. But you don’t have to be in paid employment to be happy and fulfilled. You may, in fact, find you achieve far more satisfaction in life after work. Why not do something you’ve always wanted to but never had time to? Learn to play a musical instrument, take up a sport, sign up for some volunteering, enrol on a course, get involved in a conservation project, travel the world… This is your time to do as you please. Remember, you don’t have to be constantly busy – sit back and reflect on your true values.

Adopt a proactive mindset

You often hear stories of people becoming ill, or even dying, within months of stopping work – a cruel twist of fate after they’ve laboured hard for years, looking forward to their retirement. According to the Office for National Statistics, though, health and wellbeing do actually increase in retirement while depression and anxiety often fall. This is as people have more time to adopt a healthy lifestyle and find new sources of fulfilment and exercise. The key seems to be to make a determined effort to stay sharp, be proactive and keep stretching your boundaries. It may sound surprising but workaholics often love retirement as much as they loved their careers.

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Sources

Sources
https://www.theguardian.com/lifeandstyle/2018/oct/06/life-keeps-evolving-six-ways-to-have-a-happy-retirement

3 pension changes you may have missed in the Budget

There was scarcely a mention of the ‘P’ word in October’s Budget speech (believe us, we were listening closely for it!). Instead, Hammond used the Budget speech as an opportunity to unveil his ‘rabbit in the hat’ changes to income tax thresholds, an increase in NHS mental health funding and a ban on future PFI contracts.

However, we had a good read of the accompanying ‘Red Book’ for any mention of pensions. At 106 pages, this was no mean feat. Fortunately, though, it was time well spent as we found some changes to pensions you may otherwise have missed:

The pension dashboard

HM Treasury confirmed that the Department for Work and Pensions (DWP) would look at designing a pension dashboard which would include your state pension. The pensions dashboard will be an online platform that will let you see all of your pension schemes in a single view. The average worker is nowadays expected to work eleven jobs during their career and keeping track of so many pension pots could prove confusing to say the least.

There was an extra £5 million of funding for the DWP to help make the pension dashboard a reality. Commentators see the dashboard as a welcome sign that the government is committed to helping savers keep track of their funds.

Patient capital funding

The government announced a pensions investment package which should make it easier for direct contribution pension schemes to invest in patient capital. Patient capital refers to investments that forgo immediate returns in anticipation of more substantial returns further down the line.

The government may review the 0.75% charge cap and there is widespread speculation that it will be increased to allow more investment in high growth companies.

Cold calling ban

The government has promised to ban pensions cold calling as part of a drive against pension scammers. Almost two years since the government’s initial proposals to combat pension scams were announced, pensions cold calling will finally be made illegal.

Research by Prudential indicates that one in 10 over 55s fear they have been targetted by pensions scammers since the introduction of pension freedoms in 2015. Cold calls, with offers to unlock or transfer funds, are a frequently used tactic to defraud people of their retirement savings.

As much as these measures go a long way to making people’s pensions more secure, the government will be powerless to enforce cold calls made from abroad and not on behalf of a UK company. It is unclear how and if the government will work with international regulators to mitigate the dangers of such calls.

Sources
https://www.moneyobserver.com/news/budget-2018-three-pensions-changes-you-may-have-missed

the longevity challenge and how to tackle it

In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.

The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.

In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.

Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of outliving your money.

Secondly, there’s the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in 14 over the age of 65 to one in six over the age of 80.

Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.

The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it’s definitely something that you need to take into account in your financial planning.

Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.

There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.

There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.

There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you’ll live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.

Sources

Prevalence by age in the UK


https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017

Defining and evidencing Sustainable Withdrawal rates

financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

how best to help your grandchildren finacially

Grandchildren & financesBeing a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

The plus side of this is that you get the opportunity to make a real difference to your grandchildren’s lives. The downside is that the regulations around inheritance tax (IHT) can be confusing and the red tape overwhelming at times. By taking steps to find out what the rules are though, you can make life easier for family members and still be confident that you have enough money for your own retirement dreams.

One important consideration is the timing of your gift. If there’s a new arrival in the family, the financial needs will be very different than if it is to help older children. For example, the priority may be to help the newborn’s family move to a more spacious home or to help with private school fees for a primary school-aged child. Later on, it may be to help with driving lessons, pay for school or university fees or enable them to get on the housing ladder. You may decide you want to leave your money to your grandchildren in your will, in which case it is vital to plan your giving in advance in a tax efficient way.

IHT will be levied on your estate at 40% when you die, so if you’re giving money away now that will have an impact later. The nil-rate band is a threshold of £325,000 for the value of your estate. Anything above that will be taxed. Making monetary gifts can take the money out of the ‘IHT net‘ but remember this only applies for the seven years after you made the gift. It’s worth exploring some extra allowances such as being able to give £3,000 of gifts per tax year (your annual exemption) as well as an allowance for small gifts and wedding/birthday gifts.

There are a number of alternatives to make your gift. If the money is needed before age 18, a trust structure is a tax-efficient way to give money, while still giving you some control on how it is used. A Junior ISA can also be a good option as it grows tax-free, building up a fund for driving lessons or university fees. You can’t open the JISA on your grandchild’s behalf but you can pay into it up to their annual limit, currently £4,260. If they’re older, you might want to consider a lifetime ISA for a housing deposit. Again, you can’t open it for them as a Lifetime ISA can only be opened by someone between the ages of 18-39 but if your grandchild opens one, it’s a way for them to save up to £4,000 a year and get a 25 per cent government bonus on top.

Whatever you opt for, you’ll have the feel-good factor of helping the next generation in a way that is right for both you and them.


Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/gifting-money-to-grandchildren/?utm_campaign=tmgspk_plr_2144_AqvY5NdHbz57&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvY5NdHbz

6 top tips on how not to lose money from your pension each year

Keeping track of your pension can be difficult at the best of times, and if you have multiple pots it can seem nigh on impossible. Fortunately, we have some top tips to help.

First introduced in 2012, auto-enrolment made it compulsory for UK employers to automatically enroll their staff into a pension scheme, unless they opt out.

However, according to financial services firm Hargreave Lansdown, £600 million is being lost from this scheme each year.

This is because every time you change employer, you receive a new pension pot. Each time you start a new pension pot, you are charged between £20 and £80 in administrative fees. With the average worker changing jobs 11 times, over the course of a lifetime that adds up to a substantial sum.

Luckily, there are some simple steps you can take to avoid these extra charges and make sure that you are up to date with all your pension pots:

  1. Avoid having more pension pots than necessary. If you change employers, see if you can transfer your old pension across to the scheme in your new workplace. Sometimes employers will be happy to make contributions to your existing pension pot. If so, you can keep that one going and avoid any extra charges.
  2. Be mindful of where your money is. Never take for granted that the default fund your employer provides is the best one for you. It is important to see if your hard earned pension pot could be growing more elsewhere. There’s a chance you might be able to stake out a pension fund with fewer charges or a better investment return than your employer’s default pot.
  3. Remember to notify pension companies if you move house. If you have multiple pension pots, it is easier than you think to lose track of a pension fund, especially if the company can no longer contact you.
  4. Use the government’s pension pot finding service. Luckily, the government has an online service that allows you to find contact details for your own workplace or personal pension scheme. You can access this here.
  5. Check back through your paperwork. The majority of pension providers send an annual statement that includes the current balance of your pension, plus a projection of how much your pension will be worth when you reach retirement age. There’s a chance you might have held onto these and they may be lurking at the bottom of your filing cabinet. When you find the right document, you can contact the pension provider to update your details.
  6. Get in touch with your old employers. If you think you have lost a pension pot, get in touch with your old employers straight away. They should be able to help you find the details of any lost pension.

Keeping track of your pensions can, at times, feel overwhelming. We hope that our pension top tips help you manage your pensions and maybe even save you some money.

Sources

Brits lose £300 from their pension each year – here’s how to avoid it

is buying a state pension top-up worthwhile?

As part of your overall financial planning, one item that is worth considering is your state pension and whether you are on track to get the full amount. If not, it is possible to buy top-ups, which could boost your payout by £244 a year for life.

The 2017/18 voluntary payment, under the Class 3 National Insurance top-up scheme, costs £741 and will get you nearer to, or over, the threshold for the maximum state pension payout – currently £164.35 a week. Such an opportunity can be particularly relevant for those who have contracted out of part of the state pension at some point previously during their working life.

A word of caution though before proceeding – some people have paid the top-up only to discover that it made no difference to their state pension and subsequently struggled to get a refund from HM Revenue and Customs.

Some of the confusion arose because of the major shake-up in April 2016 when the single-tier pension system was introduced. Under the old system you had to have 30 years of NI contributions to get the full basic £122.30 a week pension, whereas under the new one you have to have 35 years. The top-up system was letting some people pay for extra contributions when to do so was futile.

Despite the problems encountered by some, Steve Webb, former Pensions Minister, says it is still worth investigating whether the additional payment would boost your future state pension. ‘Ironically, I think it would be really unfortunate if lots of people who could now top up for 17/18 at incredible value were put off doing so or didn’t do so because they were still unaware of the option, and where the decision to top-up or not is much more straightforward and less likely to go wrong,’ he said.

To know where you stand, the first thing to do is to get an official state pension forecast from the Government website. This will highlight whether you have any gaps in your National Insurance record of contributions. The top-up scheme can be particularly relevant for women who took time out to look after children.,

If you reached state pension age before 6 April 2016, the old system will apply to you (that’s men who were born before 6 April 1951 and women born before 6 April 1953). However, if you reached state pension age after 6 April 2016 (men born after 6 April 1951 and women born after 6 April 1953), the new system will apply.

You also need to work out if 2017/18 was a qualifying year for you – when you were under state pension age for the whole year and in which you either paid or were credited with enough NICs to earn one year towards your state pension entitlement.


Sources
http://www.thisismoney.co.uk/money/pensions/article-5770947/Should-buy-state-pension-up.html

are you keeping an eye on your pension pot?

Keeping track of your pension pots can feel like a full time job at times, particularly as we head towards a world where the average person will have eleven different jobs over the course of their career. It’s becoming increasingly uncommon for people to stay in the same job throughout their employment. In fact, we’re now seeing that 64% of people have multiple pension pots; that’s up 2% since October 2016. While that in itself is not a worry, what is more troublesome is that of that 64%, 22% have reportedly lost track of at least one of those pots.

Which means there are more than 7 million people who may not have access to the retirement funds they’ve worked hard to amass. To make sure you’re not one of them, it’s really important to keep on top of the bigger picture of what you’re owed.

Despite an increase in pension awareness, thanks to auto-enrolment, recent research has shown that 30% of people still do not know the value of their pension. Of course, if you’re not sure of the full value of your savings, it makes it hard to plan properly for retirement.

For some, the best way to get a clearer view of the situation is through pension consolidation. If you have a number of small, automatic enrolment pots, it could be worth bringing them together to make them more manageable. Consolidation isn’t necessarily the right choice in all circumstances, though. Certain pensions, particularly those of an older style, will come with great benefits that may be relinquished upon consolidation. Whether or not this is the right path for you will depend on your personal situation, so it’s always a good idea to consult an adviser to talk you through the process before making any decisions.

If you think you may have lost sight of a pension pot yourself, there is a pension tracker available through the Department for Work and Pensions that will help you locate it.

Sources
https://moneyfacts.co.uk/news/pensions/over-one-fifth-have-lost-pension-pot/