November 24, 2023
Retirement is the main ‘goal’ for many of our clients. Once you get to a certain age, or point in your life, you ease yourself out of your career, and you prepare to enjoy some well-earned time doing whatever it is that you always planned to.
Hopefully, you’ve been talking to your IFA all along, and have a good idea what you’ve amassed in your pension pot and other investments, and whether it’s enough to enjoy a comfortable retirement. Even so, it’s natural at this point to wonder whether there is something else you could be doing.
Life can be unpredictable – you only have to look at the increased cost of living over the last couple of years to know that. So how can you ensure that the wealth you’ve been carefully investing will support you through your retirement, and enable you to leave something to the next generation?
We’ve gathered together some thoughts on preserving your wealth after retirement to ensure your hard-earned savings continue to work for you.
When it comes to investing after retirement, it’s important to consider inflation. Over time, inflation will reduce the purchasing power of your money, so it’s essential to stay invested in assets that can keep pace with inflation. Keeping large sums of cash on deposit or similar products like Premium Bonds can erode the real value of your money over time.
Your investments should already be in different asset classes. A well diversified portfolio can help to manage risk, and target a level of return that is appropriate for you, your goals and attitude to risk. The same principles still apply in retirement but your objectives may have changed. Your IFA will help guide you towards the right balance for you.
Taxation rules change regularly, so it’s crucial to stay up-to-date on the latest regulations to make sure you’re in a position to take advantage of potential tax breaks or benefits when investing after retirement. It can be confusing, so regular reviews of your IFA will make sure you’re aware of the opportunities and potential impact of any decisions you make.
Income Tax: Depending on your total income, including pensions, investments and other sources, you may be liable to pay Income Tax. Keeping track of your personal allowance, which is the income you can earn before paying Income Tax (other allowances are also available for specific income types such as dividends and savings income) is just as important after retirement.
Capital Gains Tax (CGT): When you sell an investment or asset that has appreciated in value, you may be subject to CGT. There is an annual tax-free allowance for capital gains, so talk to your IFA before making a decision to ensure you know the current threshold and how selling any assets might affect you.
Dividend Tax: If you receive dividends from investments in shares, you’ll need to consider income tax on dividends. There’s a tax-free dividend allowance, but any dividends above this threshold are subject to income tax.
Inheritance Tax (IHT): Proper estate planning can help minimise the impact of IHT on your loved ones. Make sure you understand the current IHT threshold and consider strategies such as gifting assets or setting up trusts to reduce potential tax liabilities. This is a complex area, and working with an IFA to make a plan will help to minimise your liabilities and give you peace of mind.
Pension Contributions: Did you know that you can still contribute to your pension once you’ve retired, and potentially receive tax relief on those contributions? This can be an effective way to continue to grow your pension savings while reducing your overall tax liability. Your IFA can help you to work out if this is right for you.
Individual Savings Accounts (ISAs): Using your annual ISA allowance can mean tax-free returns from equities, bonds and other assets. Perhaps you have other investments that you could move into an ISA?
At Talis IFA our advisers are here to help you achieve your goals at whatever stage you are in your life. A comprehensive review of your current financial position will help you to plan for the future and make any changes that might be necessary. Find a Talis IFA here.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).
The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits.
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