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Monthly Archives :

May 2022

The main measures enabling people to retire early or think about retiring early

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The main measures enabling people to retire early or think about retiring early

  • 32% – Having a defined benefit (Final Salary) Pension
  • 29% – Saving little and often
  • 16% – Receiving a redundancy pay-out
  • 30% – Paying off your mortgage
  • 19% – Saving extra whenever receiving a pay rise or bonus
  • 14% – Receiving an inheritance

How much income will I need in retirement?

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There is no fixed path to retirement or finite end point. Everyone has a different journey through life, with their own experiences along the way, and there is no need for it to become stressful.

It is important to have a plan in place to ensure the retirement that you want. There are several key questions to consider including:

  • When can you afford to retire?
  • When would you like to retire?
  • Do you have enough to meet your income needs?

Get in touch with us to discuss your retirement planning options.

Fed up with your nine-to-five?

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Sixty the most popular age to retire early

There are many factors that can influence when someone decides to retire. For some, it may be based on health reasons, while others may want to take advantage of government benefits or simply enjoy a more relaxed lifestyle. However, one of the most common factors that determines when people choose to retire is their age.

So, what is the most popular age to retire early? Sixty is the most popular age to retire early, according to new research[1] which reveals the key steps people have taken to embrace early retirement and examines the costs and benefits of doing so.

Wanting to enjoy more freedom

One in four (25%) are planning to celebrate their 60th birthday by leaving work behind. With the State Pension age currently standing at 66, the findings show one in six (17%) people who have taken early retirement did so when they were 60, making it the most common age to make an early exit from working life.

This is also the most popular target age for people who intend to retire early in the years ahead, with one in four (25%) planning to celebrate their 60th birthday by leaving work behind. The desire to retire early is primarily driven by ‘wanting to enjoy more freedom while still being physically fit and well enough to enjoy it.’

Embracing a new lifestyle

Nearly one in three people (32%) who have retired early or plan to do so gave this reason for embracing a new lifestyle. Financial security is the second most common factor prompting people to embrace retirement. More than one in four (26%) early retirees say their decision was a result of ‘being in a financially stable position’ so they can afford not to work.

The influence of money matters is also visible in people’s choice of early retirement age. One in five (20%) people targeting early retirement have set their sights on 55 to make the transition from working life. This is likely to be influenced by their ability to access their pension savings from this age.

‘Too taxing and stressful’

Other key factors encouraging people to seek early retirement include reassessing their priorities and what’s important to them in life (23%), wishing to spend more time with family (20%) or finding they are either ‘tired and bored’ of working (19%) or find it ‘too taxing and stressful’ (19%).

The research suggests the impacts of early retirement are wide-ranging and broadly positive in many areas of life. Most notably, more than two in three (68%) people who have retired early say their happiness improved as a result. In terms of the world around them, 44% of early retirees say their family relationships improved and 34% reported improvements in their friendships.

Boost to mental wellbeing

When it comes to their health and wellbeing, more than half report that early retirement has delivered a boost to their mental wellbeing (57%) and half (50%) say their physical wellbeing improved.

However, the Findings suggest these benefits come at a cost, with nearly half of early retirees finding their finances worsening as a result (47%).

Women are the most likely to have felt a negative financial impact from retiring early (50% vs. 44% of men). Across both genders, only 22% feel they have benefited financially from their decision to retire early.

Stepping stone to retiring early

Among those people who have retired early, one in three (32%) identify having a defined benefit (final salary) pension among the main measures that enabled them to take retirement into their own hands. This suggests the concept of early retirement may get harder for younger generations to achieve, with the majority of the private sector workforce now saving into defined contribution pension schemes.

However, the findings suggest that people can still take positive steps to make an early retirement possible. Paying off your mortgage (30%) is identified as the second most common stepping stone to retiring early, while almost three in ten early retirees (29%) say saving little and often was one of their main strategies.

Nearly one in five (19%) say they also saved extra whenever they received a pay rise or a bonus during their working life.

The main measures enabling people to retire early or think about retiring early

  • 32% – Having a defined benefit (final salary) pension 30% – Paying off one’s mortgage
  • 29% – Saving little and often
  • 19% – Saving extra whenever receiving a pay rise or bonus
  • 16% – Receiving a redundancy payout 14% – Receiving an inheritance

Wanting a new sense of purpose

Among those who take early retirement, the research also reveals there is a small contingent who have returned to work (17%) or envisage themselves doing so in the future (15%). Over one in four (27%) cite the reason for returning to work is because they ‘wanted a new sense of purpose’, making this the most frequent driver, followed by ‘missing the company and social interactions with colleagues’ (26%). However, a similar number (24%) of early retirees find themselves heading back to work having experienced financial issues.

While happiness soars in retirement, many people find their finances take the strain when they retire early and money worries are one of the biggest factors resulting in people returning to work. If you aspire to retire early, it’s vital you plan your finances to be sustainable for the long-term.

What do you need to do to retire early?

The dream of an early retirement is very much alive and kicking, but there are many factors to consider along the way and the current uncertainty about the future does not make this an easy decision. For further information or to discuss your requirements, please contact us.

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.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options are retirement.

Source data: [1] https://www.aviva.com/newsroom/news-releases/2021/12/sixty-the-most-popular-age-to-retire-early/

What are the thresholds for Inheritance Tax

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Your estate is comprised of everything you own but one thing is for certain – you cannot take it with you when you die.

When the inevitable happens, you may want to make sure that as much of your estate reaches your heirs, rather than being depleted by tax beforehand. Rising house prices and a recovering economy means tens of thousands more families will be hit with Inheritance Tax bills, making it essential to plan ahead.

Get in touch with us to discuss your Inheritance Tax planning options.

Inheritance Tax planning with Ellis Bates

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Most people’s estates are assessed for IHT on death, but the tax can also be chargeable and payable during your lifetime on the transfer of assets, particularly transfers into some types of trust. If you are married or have a civil partner, you can leave your entire estate to your partner free of IHT, but anything left to family and friends may be taxed.

Get in touch with us to discuss your Inheritance Tax planning options.

Inheritance tax residence nil-rate band

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Owning a residence which you leave to direct descendants.

The introduction of the ‘residence nil-rate band’ (RNRB) has made it easier for some individuals to pass on the family home. The rise in property prices throughout the UK means that even those with modest assets may exceed the £325,000 ‘nil-rate band’ (NRB) for Inheritance Tax.

On 6 April 2017, the RNRB band came into effect. It provides an additional nil- rate band where an individual dies after 6 April 2017, owning a residence which they leave to direct descendants.

During the 2022/23 tax year, the maximum RNRB available is currently £175,000. Just like the standard NRB, any unused RNRB on the first death of a married couple or registered civil partners has the potential to be transferable even if the first death occurred before 6 April 2017. However, the RNRB does come with conditions and so may not be available or available in full to everyone.

Taxable estate

The RNRB is set against the taxable value of the deceased’s estate – not just the value of the property. Unlike the existing NRB, it doesn’t apply to transfers made during an individual’s lifetime. For married couples and registered civil partners, any unused RNRB can be claimed by the surviving spouse’s or registered civil partner’s personal representatives to provide a reduction against their taxable estate.

Where an estate is valued at more than £2 million, the RNRB will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold. Special provisions apply where an individual has downsized to a lower value property or no longer owns a home when they die.

Lifetime gifts

In determining whether the £2 million threshold is breached, it is necessary to ignore reliefs and exemptions. This means that business relief and agricultural relief are ignored when determining the value of the estate for the RNRB even though they are taken into account to calculate the liability to Inheritance Tax.

As the £2 million is based on the value of the assets owned at the time of death, it does not include any lifetime gifts made by the deceased, even if they were made within seven years of death and are included in the Inheritance Tax calculation. The amount of RNRB available to be set against an estate will be the lower of the value of the home, or share, that’s inherited by direct descendants and the maximum RNRB available when the individual died.

Deceased spouse

Where the value of the property is lower than the maximum RNRB, the unused allowance can’t be offset against other assets in the estate but can be transferred to a deceased spouse or registered civil partner’s estate when they die, having left a residence to their direct descendants.

A surviving spouse or registered civil partner’s personal representatives may claim any unused RNRB available from the estate of the first spouse or registered civil partner to die.

Residential interest

This is subject to the second death occurring on or after 6 April 2017 and the survivor passing a residence they own to their direct descendants. This can be any home they’ve lived in – there’s no requirement for them to have owned or inherited it from their late spouse or registered civil partner.

In order to pass on a qualifying residential interest and use the Inheritance Tax RNRB, the property needs to be ‘closely inherited’. This means that the property must be passed to direct descendants.

Special guardian

For these purposes, direct descendants are lineal descendants of the deceased – children, grandchildren and any remoter descendants together with their spouses or registered civil partners, including their widow, widower or surviving registered civil partner. Also included are a step, adopted or fostered child of the deceased, or a child to which the deceased was appointed as a guardian or a special guardian when the child was under 18.

Direct descendant doesn’t include nephews, nieces, siblings and other relatives. If an individual, a married couple or registered civil partners do not have any direct descendants that qualify, they will be unable to use the RNRB.

Deemed residence

The facility to claim unused RNRB applies regardless of when the first death occurred – if this was before it was introduced, then 100% of a deemed RNRB of £175,000 can be claimed, unless the value of the first spouse or registered civil partner’s estate exceeded £2 million, and tapering of the RNRB applies.

The unused RNRB is represented as a percentage of the maximum RNRB that was available on first death – meaning the amount available against the survivor’s estate will benefit from subsequent increases in the RNRB.

Deed of variation

The transferable amount is capped at 100% – claims for unused RNRB from more than one spouse or registered civil partner are possible but in total can’t be more than 100% of the maximum available amount.

Under the RNRB provisions, direct descendants inherit a home that’s left to them which becomes part of their estate. This could be under the provisions of the deceased’s Will, under the rules of intestacy or by some other legal means as a result of the person’s death – for example, under a deed of variation.

Main residence

The RNRB applies to a property that’s included in the deceased’s estate and one in which they have lived. It needn’t be their main residence, and no minimum occupation period applies. If an individual has owned more than one home, their personal representatives can elect which one should qualify for RNRB.

The open market value of the property will be used less any liabilities secured against it, such as a mortgage. Where only a share of the home is left to direct descendants, the value and RNRB is apportioned.

Complex area

A home may already be held in trust when an individual dies or it may be transferred into Trust upon their death. Whether the RNRB will be available in these circumstances will depend on the type of Trust, as this will determine whether the home is included in the deceased’s estate, and also whether direct descendants are treated as inheriting the property.

This is a complex area, and HM Revenue & Customs provides only general guidance, with a recommendation that a solicitor or trust specialist should be consulted to discuss whether the RNRB applies.

Downsizing addition

Estates that don’t qualify for the full amount of RNRB may be entitled to an additional amount of RNRB – a downsizing addition if the following conditions apply: the deceased disposed of a former home and either downsized to a less valuable home or ceased to own a home on or after 8 July 2015; the former home would have qualified for the RNRB if it had been held until death; and at least some of the estate is inherited by direct descendants.

The downsizing addition will generally represent the amount of ‘lost’ RNRB that could have applied if the individual had died when they owned the more valuable property. However, it won’t apply where the value of the replacement home they own when they die is worth more than the maximum available RNRB. It’s also limited by the value of other assets left to direct descendants.

Planning techniques

Different planning techniques are available to address a potential Inheritance Tax liability, and these can be incorporated into the financial arrangements of any individual whose estate is likely to exceed the threshold. Get in touch with us for more guidance on planning techniques.

Market volatility webinar feedback

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Ellis Bates Q&A Webinar

Market Volatility & Your Investments

As world events continue to affect the investment markets, we recently held an open Q&A session for all Ellis Bates clients to ask their questions to our in-house Investment Team.

Headed by our Director of Investment Alan Cram, questions included the ‘Ukraine’ impact on Russian funds, the changing role of China within the markets, re-assessing attitude to risk with the current market volatility and how to spread investments over the short, medium and long term.

Clients welcomed the opportunity to gain a better understanding of the ups and downs of the markets and how this affected their investment portfolios and ongoing investment decisions.

Ellis Bates are here to enhance people’s lives by delivering peace of mind, enabling financial freedom and helping clients achieve their goals.

If you would like more information about our financial advice and investment services simply book a chat.

Investing with Ellis Bates

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Since 1980 our experience has helped our clients to keep and grow their money, as well as make sensible decisions for your future. Whether you are new to investments or want to re-evaluate your portfolio, we can help you. One crucial area of discussion relates to your comprehension of risk, which is supported by an initial questionnaire and assessment.

Adviser and client sat discussing the current volatile market

How to manage risk in a volatile market

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With the current volatile market we are seeing for the first time in many years, now may be the time to review your investment goals and timescales.

Whether you’re investing with a goal in mind, or simply saving for retirement, it’s important to understand risk, particularly in todays volatile market. Specifically, you should understand your own attitude to risk. If you understand the risks associated with investing and you know how much risk you are comfortable taking, you can make informed decisions and improve your chances of achieving your goals.

Risk is the possibility of losing some or all of your original investment. Often, higher-risk investments offer the chance of greater returns, but there’s also more chance of losing money. Risk means different things to different people.

How you feel about it depends on your individual circumstances and even your personality. Your investment goals and timescales will also influence how much risk you’re willing to take. What you come out with is your ‘risk profile’.

You can invest directly in investments, like shares, but a more popular way to invest in them is indirectly through an investment fund. This is where your money is pooled with other investors and spread across a variety of different investments, helping to reduce risk.

Different types of investment

None of us likes to take risks with our savings, but the reality is there’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types of investment.

As a general rule, the more risk you’re prepared to take, the greater returns or losses you could stand to make. Risk varies among the different types of investments. There are many different ways to access investment funds, such as through Individual Savings Accounts (ISAs) and workplace pensions.

Losing value in real terms

Money you place in secure deposits (such as savings accounts) risks losing value in real terms (buying power) over time. This is because the interest rate paid won’t always keep up with rising prices (inflation).

On the other hand, index-linked investments that follow the rate of inflation don’t always follow market interest rates. This means that if inflation falls, you could earn less in interest than you expected.

Inflation and interest rates over time

Stock market investments might beat inflation and interest rates over time, but you run the risk that prices might be low at the time you need to sell. This could result in a poor return or, if prices are lower than when you bought, losing money. With the current volatile market and unprecedented levels of inflation, these considerations are now more important than ever.

You can’t escape risk completely, but you can manage it by investing for the long term in a range of different things, which is called ‘diversification’. You can also look at paying money into your investments regularly, rather than all in one go. This can help smooth out the highs and lows and cut the risk of making big losses.

When you invest, you’re exposed to different types of risk

Capital risk

Your investments can go down in value, and you may not get back what you invested. Investing in the stock market is normally through shares (equities), either directly or via a fund. The stock market will fluctuate in value every day, sometimes by large amounts. You could lose some or all of your money depending on the company or companies you have bought. Other assets such as property and bonds can also fall in value.

Inflation risk

The purchasing power of your savings declines. Even if your investment increases in value, you may not be making money in ‘real’ terms if the things that you want to buy with the money have increased in price faster than your investment. Cash deposits with low returns may expose you to inflation risk.

Credit risk

Credit risk is the risk of not achieving a financial reward due to a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk is closely tied to the potential return of an investment, with the most notable being that the yields on bonds correlate strongly to their perceived credit risk.

Liquidity risk

You are unable to access your money when you want to. Liquidity can be a real risk if you hold assets such as property directly, and also in the ‘bond’ market, where the pool of people who want to buy and sell bonds can ‘dry up’.

Currency risk

You lose money due to fluctuating exchange rates.

Interest rate risk

Changes to interest rates affect your returns on savings and investments. Even with a fixed rate, the interest rates in the market may fall below or rise above the fixed rate, affecting your returns relative to rates available elsewhere. Interest rate risk is a particular risk for bondholders.

For more information on considering risk, download our brochure.