May 12, 2023
Most of us tend to think of retirement either as centred around reaching a particular age, or having a specific amount of money available. When we get to ‘X’ years old or have ‘Y’ amount of money, we can move on to our ‘golden years’.
The unusual times we’ve been living through in the last few years have made many people reappraise that, consider their work-life balance and think more seriously about what makes them happy.
Whilst it’s true that retirement increases happiness for many people, others find their finances under strain when they retire early. In 2023, money worries are one of the biggest factors causing people to ‘unretire’ and return to work.
If you’re still working but hope to retire soon – whether early or ‘on time’, it’s a good idea to take a look at your finances now to check that there’s enough in the pot to support you long-term.
At Talis IFA, we help our clients to take a detailed look into their finances, offering straight-talking advice that enables them to plan for their financial future and take control of it with more confidence.
If you decide to talk to one of our independent advisers about your retirement plans, here are some of the questions you are most likely to be asked.
Ideally, it’s best to get a plan in place as far ahead of your intended retirement date as possible. That way, you can take the time to gain a full understanding of your financial situation and identify any issues or opportunities for improvement. In a perfect world, you should start saving for retirement in your 20s and 30s, even if you don’t plan to retire for many years. This will help you build your savings over time and ensure that you have enough money to sustain yourself during retirement.
It’s not a perfect world, of course, and if you find yourself nearing retirement without a plan already in place, you’re not alone. Recent figures suggest that 20% of people in the UK have no pension savings (other than state pension) and 16% of the over 50s – who might expect to be within sight of retirement have no private pension savings.
If that sounds like you – don’t worry. There are still things you can do, and we’ll use our expertise to explore your options and talk you through them.
Inflation is a major factor affecting retirement plans because, over time, it can reduce the purchasing power of your money. If the amount you receive in retirement is based on a fixed income, it will not be able to keep up with future inflationary rises, meaning that you may be unable to afford the same lifestyle that you enjoyed before retirement.
That makes it essential to plan for retirement by ensuring that your savings and investments are able to grow in real terms, above the rate of inflation. This can be done through a combination of investing in assets that aim to provide returns above the rate of inflation, as well as ensuring that your retirement income is not linked to a fixed amount but instead grows with inflation over time.
When helping you to make investment decisions, one of the first things we’ll need to do is to establish the level of risk that you are comfortable with. Attitudes risk vary from person to person, so professional advice is vital to help you assess your risk tolerance.
Taking the time to learn about how you respond to different kinds of market volatility and levels of risk will help us to help you create a more informed and effective retirement plan.
Knowing what kind of investor you are – cautious, balanced or adventurous – will enable us to make better recommendations and you to make more informed decisions about where to invest your money.
It can also help you avoid some of the common pitfalls associated with retirement planning, such as being too conservative or overly aggressive in your approach.
Cash flow modelling is a very useful tool for understanding whether your money might outlast you or vice versa. It can help test assumptions about future income requirements by considering all of your potential sources of income in retirement and how they can best be used to meet your expenditure.
This involves considering multiple factors such as your underlying investments, tax and, perhaps most importantly, how well your different income streams are protected against inflation.
Another benefit of cash flow modelling is that you can easily change those assumptions if your circumstances change, factoring in different investment returns, tax rates and inflation.
This could help you answer the question ‘How much is enough?’ to support your desired lifestyle in retirement.
Fewer employers offer the guarantee of a final salary (defined benefit) pension these days, making annuities an appropriate option to consider for some retirees. An annuity provides a guaranteed income for the rest of your life, and can ensure you have enough money to last you throughout retirement no matter how long that is.
In order to decide whether an annuity is right for you, it’s important to look at the different types of annuities available, and to consider the tax implications and other factors such as inflation.
Inflation can erode the value of your savings over time. By investing in real assets, you can help to protect your retirement savings against the rising cost of living over what could be two or even three decades! Holding less cash on deposit could help to create a sustainable and secure retirement plan that is protected from the long-term effect of inflation.
At Talis IFA, we understand that everyone’s idea of what a comfortable retirement looks like is different. That’s why we take a life first, money second approach, taking the time to get to know you, your lifestyle, and your retirement plans in detail before we start to look together into your investment options.
Click here to find a Talis IFA.
This article does not constitute tax or legal advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless 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.
site by motley.co.uk