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Are You Leaving Your Retirement Planning Too Late?

For many of us, old age and retirement can feel a long way off, and with the world seemingly lurching from crisis to crisis, many of us are focused on simply getting through the next few days and weeks, rather than looking too far ahead.

However, that approach could simply store up problems for the future, which is why we’d urge anyone to start planning for their retirement as soon as possible.

According to a new study by Hargreaves Lansdown, one in five people said they would leave planning their retirement until they’re aged 60 or above.

The same survey showed that one in five people would only begin retirement planning at the age of between 30 and 39. Similarly, just one in seven people said they started planning for retirement when they were aged between 18 and 24.

So what does this mean for future retirees? Well, it’s a fact that the sooner you start putting money into your pension, the more time you have to build up a sizeable sum that should see you through your retirement.

Conversely, if you start too late, you’ve got a very short space of time in which to build up a retirement fund, which could hugely affect your ability to lead the lifestyle you want to enjoy after you finish working.

And if you start projecting your likely pension income in retirement, you may find that you don’t have very long in which to make up any shortfall.

Commenting on the figures, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, acknowledged that it can be “easy to put off planning until the last moment”.

However, she insisted that pensions were a “long-term game”, which means action needs to be taken sooner rather than later.

“It’s worth taking the time earlier in your career to think about what kind of retirement you would like and put a plan in place to help you achieve it,” Ms Morrisey commented.

A lack of financial knowledge and education about pensions and retirement could be one big reason why so many people are kicking in the can down the road.

In fact, according to a YouGov survey, commissioned by Drewberry, 41 per cent of people with a workplace pension don’t actually know what they’re paying in and what they’ll get from it when they retire.

More than half of those polled also said they’d like to know if they’re saving enough for retirement, and significantly, one in three believe their employer should pay for them to discuss retirement planning with a financial adviser to get a better understanding of their finances.

Whether a lack of financial education leads to people ignoring and putting off financial planning is a constant topic of debate in the financial services industry. But it’s clear that more needs to be done to engage with both employers and savers on this issue, so people are properly set up for later life, and the fear factor that surrounds pension planning is taken out of the picture.

Interestingly, 87 per cent of the people polled by YouGov said they pay into a workplace pension, while 56 per cent said the provision of a workplace pension is important to them when they’re looking for a new job.

That suggests that many people do want to lay down the groundwork to secure a happy and prosperous future, but don’t necessarily know how – and that’s where making financial advice available and accessible becomes so important.

Sources
https://www.pensionsage.com/pa/One-in-five-leaving-retirement-planning-till-aged-60.php
https://hrnews.co.uk/brits-baffled-by-complicated-pensions/

Will you keep working after turning 65?

Many of us dream of retiring early and spending our post-working life indulging in our hobbies and passions. But since the state pension age went up from 65 to 66 between late 2018 and late 2020, employment rates among 65-year-olds have reached record highs.

According to a report from the Institute for Fiscal Studies (IFS), the increase in employment among this age group since the change was implemented is as big as the one that occurred between 2005 and 2017.

Laurence O’Brien, a Research Economist at the IFS, described the increase as “striking”, so why exactly is this happening?

The IFS data suggests that the sharp increase in employment among 65-year-olds is being largely driven by people in less affluent areas, and those who have lower levels of education.

Indeed, figures show that since the state pension age went up, the employment rate among 65-year-old men rose by 10% in the most deprived areas of the UK, compared with 5% in the most prosperous areas.

Similarly, in the most deprived places, the women’s employment rate at age 65 went up by 13%, compared with 4% in the most well-off places.

This suggests that without a state pension, people living in less affluent parts of the country wouldn’t be able to afford to retire, or at least enjoy the kind of lifestyle in retirement that they’d wish to have.

It also points to a lack of financial education in these locations, with many lacking not only the means, but also the knowledge of how to prepare their finances for retirement in advance.

Another point to stress is that the effects of the state pension increase on men and women have not been the same.

Since the change was made, an extra 7% of 65-year-old men have stayed in paid work, compared with 9% of women in this age group.

While the report applies a broad brush to large numbers of people, it is clear that socio-economic and demographic factors are continuing to have a profound impact on the life decisions people feel able to take across the UK.

However, there was a ray of light in the IFS report, with figures showing that most people who decide to delay retirement since the increase in the state pension age are likely to be financially better off.

The report notes that these people would only need to work about 20 hours a week at the National Living Wage to compensate for losing their state pension income, and most 65-year-olds are earning more than this every week.

But crucially, it states that they also miss out on the many benefits of retirement, such as enjoying lots of leisure time, as a result of working for longer.

Figures showed that 65-year-olds are working 1.8 million hours a week extra since the state pension age was increased – a measure of just how much precious time they’re missing out on because they’re still working.

Sources
https://ifs.org.uk/publications/15918

Can I afford to retire?

Retirement has often been described as “the longest holiday of your life.” But attractive as that sounds, can you afford to pay for the holiday?

Research by one leading insurance company shows that 69% of people over the age of 50 are concerned about their income in retirement.

Many people underestimate how much income they will need when they retire. If you’ve been used to having two cars, going on foreign holidays and eating out then it is unlikely that you’ll want to give those up simply because you’ve stopped work. In fact, many people find that their need for income actually increases when they retire. After all, if you’re behind a desk all day, the only money you’ll spend will probably be on a sandwich at lunchtime. Contrast this with how much you spend on a day off.

As worries about income in retirement increase, so do people opting to keep working after their normal retirement date.

Many people who have their own business argue that “my business is my pension.” Again, that works well in theory – but it assumes that you can sell the business for the price you want at exactly the time you want. With technology changing ever more quickly and more and more businesses losing market share to the internet, relying on your business to fund your retirement can be a high risk strategy.

More than any other aspect of financial planning, your retirement demands careful consideration. From checking on your likely state pension to tracking down any previous pensions you might have to making sure you’re contributing sufficient to your current pension – retirement planning needs to be done thoroughly and reviewed regularly.

Defined Contribution vs Defined Benefit – what’s the difference and what’s the trend?

As defined contribution pension plans overtake defined benefit (in terms of money paid into schemes) for the first time ever, more and more people are taking an interest in how the two differ and the relationship between them. The Office of National Statistics (ONS) has reported that in 2018, employee contributions for defined contribution pension pots reached £4.1bn, compared to the £3.2bn that employees contributed to DB schemes.

With April 2019’s increase to minimum contributions for DC schemes seeing employer contribution hitting 3% and employees contributing 5% towards their pension, the trend of DC contribution increases in relation to DB isn’t set to slow any time soon.

So before DB Pensions become a distant memory, let’s take a look at exactly what they are. A defined benefit pension, which is sometimes referred to as a final salary pension scheme, promises to pay a guaranteed income to the scheme holder, for life, once they reach the age of retirement set by the scheme. Generally, the payout is based on an accrual rate; a fraction of the member’s terminal earnings (or final salary), which is then multiplied by the number of years the employee has been a scheme member.

A DB scheme is different from a DC scheme in that your payout is calculated by the contributions made to it by both yourself and your employer, and is dependent on how those contributions perform as an investment and the decisions you make upon retirement. The fund, made of contributions that the scheme member and their employer make, is usually invested in stocks and shares while the scheme member works. There is a level of risk, as with any investments, but the goal is to see the fund grow.

Upon retirement, the scheme member has a decision to make with how they access their pension. They can take their whole pension as a lump sum, with 25% being free from tax. They can take lump sums from their pension as and when they wish. They can take 25% of their pension tax free, receiving the remainder as regular taxable income for as long as it lasts, or they can take the 25% and convert the rest into an annuity.

One of the reasons for DB schemes becoming more scarce is that higher life expectancies mean employers face higher unpredictability and thus riskier, more expensive pensions. This is a trend that looks likely to continue. If you’re unsure of how to make the most of your pension plan, it’s recommended to consult with a professional.

Sources
https://businessnewswales.com/defined-contribution-pensions-overtake-defined-benefit-for-the-first-time-ever/ https://www.moneyadviceservice.org.uk/en/articles/defined-contribution-pension-schemes https://www.pensionsauthority.ie/en/LifeCycle/Private_pensions/Final_salary_defined_benefit_schemes/
https://www.moneywise.co.uk/pensions/managing-your-pension/your-guide-to-final-salary-pensions

Why cruise holidays are booming for retirees

The cruise market offering has changed enormously in recent years, where once it was purely the domain of cabaret cheese and bad karaoke, now there’s something on offer for everyone (don’t worry, though, if you love cabaret and karaoke, that’s still an option). Whatever your tastes and priorities, you won’t be hard pressed to find a cruise to suit your needs.

Cruises have always been a popular choice for retirees but with the new potential for personalisation, they’re more popular than ever, with over 26 million passengers carried worldwide in 2018 alone. So what is it that makes taking to the seas such an attractive prospect?

1) Flexibility

Cruises have the potential to be a catch-all for whatever kind of holiday you’re looking for. Whether you’re after a romantic getaway, a family break over the school holidays, or a round-the-world trip that ticks off everything that’s left on your bucket list; it’s all possible when you’re on a cruise liner.

2) Activities

There really is a cruise out there for everyone. Some people want to lay on the deck and bathe in the sun, some people want to hone their rock-climbing skills, while others want to kayak alongside breaching whales. The possibilities are endless: if your priority is trying the food of critically acclaimed chefs, or even having a go at cooking the dishes yourself, fine dining can now be found onboard in some of the most remote corners of the world’s oceans.

3) Modern life can be stressful

Taking a cruise is not just about the food and entertainment available on board and the chance to see some fantastic locations. It’s also about taking the hassle of too much planning away from the holiday goer. Being able to relax and take a breather while you’re travelling the world is becoming a bigger priority for people and this has been reflected in the incredible attention and investment given to spa and wellness facilities on cruise ships. Plus it’s a great chance to unplug and really experience the world around you.

4) Value

Despite historically being a pursuit of the highest luxury with the pricetag to match, there are plenty of choices available for more budget conscious passengers. All-inclusive cruise holidays are a smart way to enjoy all the bells and whistles whilst remaining price savvy. Pick the right vessel and you can experience entertainment of broadway quality included in your price.

If you want to enjoy your retirement to its fullest but can’t decide on the best way to do that, considering a cruise trip is a great place to start.

Sources
https://www.lonelyplanet.com/amp/travel-tips-and-articles/getting-on-board-10-reasons-to-consider-a-cruise-trip/40625c8c-8a11-5710-a052-1479d27561cd?_t_witter_impression=true
https://cruisemarketwatch.com/growth/

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

over 60s are jumping off the property ladder. Here’s why….

In 2007, there were 254,000 older people living in private rented accomodation. According to research by the Centre for Ageing Better, over the last decade that figure has skyrocketed to 414,000. If things continue the way they’re going, they estimate that over a third of those over 60 will be privately renting by 2040.

So why the shift? Renting comes with some clear benefits. Having to pay stamp duty becomes a thing of the past, as does worrying about managing property maintenance. A certain sense of freedom comes with renting too, particularly in terms of location. It’s a great opportunity to finally live on the coastline or in the city centre that you’ve always wanted to, but have not been able to afford to.

For example, one couple had previously owned a retirement flat in Torquay which they subsequently sold for £55,000. They dreamed of moving to Bournemouth, where a modest one bed apartment would have set them back closer to £150,000 and so was out of their reach. They found a home to let on an assured tenancy, allowing them to remain in the property for life for a fee of £775 a month including service charges. Selling to rent has allowed them to liquidate their biggest asset, and free up their capital to spend on travel.

Renting needn’t be forever, and for some people it’s a great opportunity to stop and think about your next move. It can give you time to really look at the options out there if you intend to get back on the housing ladder. Your requirements will change as you grow older and downsizing can be a great idea for some. Before you find the perfect property which will suit your needs going forward, renting gives you the chance to release some capital and decide what to do with it.

It’s worth bearing in mind, though, that by selling up and moving into private rented accommodation, your estate could receive a higher IHT bill. The inheritance tax exemption introduced in 2017 allows parents and grandparents an additional IHT allowance when their children or grandchildren inherit their main home, and so selling your home could remove your eligibility for the exemption.https://www.telegraph.co.uk/property/retirement/renting-retirement-over-60s-jumping-property-ladder/
https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/should-you-sell-up-and-rent-in-retirement/

4 savings habits of millionaires

There are no shortcuts or guarantees when it comes to achieving self-made millionaire status. That said, it can’t hurt to look at the financial habits of those who have managed to do just that to try and boost your own coffers. Here are our top tips from looking at those who’ve become millionaires by age 30. Who knows, they might just lead to you being worth seven figures in the future.

  1. Don’t rely on your savings – The current economic environment makes it very difficult to become wealthy through saving, so increasing your income is an obvious but good way to boost your bank balance. Whilst increasing your main salary can also be a challenge, you might think about other ways to achieve this such as earning passive income through property rental, or taking on freelance or consultancy work on the side (just keep an eye on any tax repercussions).
  2. Invest, invest, invest – Instead of saving for a rainy day, put your savings into investments. If you choose investments and accounts with restricted access to your funds, not only will this ensure your investments pay off, but it will also help you to focus on increasing your income rather than relying on money you’ve put away.
  3. Change your mindset – Nobody has ever become a millionaire without believing that it’s something they themselves can both achieve and control. The best way to do this is to invest in yourself. Spending time educating yourself about both your business area and the financial world in general will help you to understand how to capitalise on opportunities and genuinely believe you can increase your net worth.
  4. Make plans and set goals – You’ll only boost your wealth if you actually plan out how you’re going to do it. Before you can make a plan, however, you need to decide what you’re aiming for. If you really do want to become a millionaire, then think big: if you have a certain figure you want to achieve, aiming higher will help ensure you reach it or even surpass it.
    Sources
    http://www.independent.co.uk/life-style/9-things-to-do-in-your-20s-to-become-a-millionaire-by-30-a7377801.html

millennials on target to enjoy inheritance boom but not until they’re 61

A recent report has revealed that millennials are set to benefit from an ‘inheritance boom’ bigger than that experienced by any other generation in the post-war period. The Resolution Foundation, the think-tank which carried out the research, defined millennials as people currently aged between 17 and 35, and found that those within this age bracket will be left record amounts of wealth by their ‘baby boomer’ parents and grandparents.

The report found that inheritances will double in size over the next twenty years, peaking in 2035, as baby boomers who generally have high levels of wealth move through old age. Additionally, nearly two thirds of millennials have parents who are property owners, of which they may receive a share in the future. This is a stark difference to adults born in the 1930s, of whom only 38% received an inheritance.

However, the Resolution Foundation also stressed that the inheritance boom will not be a ‘silver bullet’ which allows millennials to get on the property ladder or address the wealth gaps which are currently growing in society, as most will only benefit from their inheritance when they themselves are nearing pension age. The average age at which people lose both parents is getting later; people who are currently between 25 and 35 are expected to be 61 years old when this happens.

Another key finding of the report was the strong correlation between the property wealth of millennials and the amount they are set to inherit from their parents, with those who were able to get on the property ladder during their early 20s, destined to benefit the most from the inheritance boom. The new inheritance tax housing allowance will also be fully implemented in 2020, meaning that as much as £500,000 per person will be able to be passed on without incurring tax, allowing millennials whose parents own valuable homes to cut their average tax burden in half.

In comparison, those millennials who do not own their own home by their mid thirties are much less likely to receive a large inheritance from their parents. Additionally, if they inherit this when in their 60s, they’ll then be much less likely to be able to secure a mortgage, meaning that some may struggle to climb onto the property ladder throughout both their working and retired lives.

Sources
http://www.telegraph.co.uk/news/2017/12/30/millennials-will-pensioners-receiving-inheritance/
http://www.bbc.co.uk/news/uk-42519073