Retirement

When should I stop working?

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A mature couple looking at paperwork to for see if they can take early retirement

Do you have enough income to retire? Are you prepared for the life changes retirement will bring? Is this the right time to sell your business Is your timing right or will your savings and investments be at risk from volatile market conditions?

The best time to retire will depend on a variety of factors, including your health, your financial situation and your personal preferences. If you’re in good health and you have a solid financial foundation, you may be able to enjoy a long and active retirement. On the other hand, if your health is declining or you’re struggling to make ends meet, early retirement may be the best option.

Spending power each year

Ultimately, the decision of when to retire is a personal one. It’s important to do some soul-searching and research before making a final decision. Once you’ve decided when the right time for you is, be sure to plan carefully to make the most of your retirement years.

Some people may now need to think about the impact that inflation could have on their retirement income, and to consider whether they can afford to retire yet. Rising inflation can wipe years of retirement income off pension pots as savers must increase the amount they withdraw to maintain the same spending power each year.

Impact on retirement plans

Inflation can have a significant impact on your retirement plans. If inflation is high, the purchasing power of your savings will decrease
over time. This means that you will need to save more money in order to maintain your standard of living in retirement.

To offset the impact of inflation, you may need to adjust your retirement plans. For example, you may need to save more money so that you can maintain your standard of living in retirement. Additionally, you may need to invest in assets that are less vulnerable to the effects of inflation. Bonds are one type of investment that can help protect your portfolio from inflation risk. In general, they can offer relative stability, but you need to take your age and risk tolerance into consideration.

Potential effects of inflation

While inflation can have a significant impact on your retirement plans, there are steps you can take to offset its effects. By saving more money and investing in assets that are less vulnerable to inflation, you can help ensure that your retirement plans remain on track. Additionally, by being aware of the potential effects of inflation, you can make adjustments to your plans as needed to account for its impact.

As you get closer to retirement, it’s important to start thinking about how inflation could impact your plans. While inflation can be a good thing if it leads to higher wages and increased economic activity, it can also be a problem if prices start rising faster than your income, as we’ve seen this year with inflation reaching a new 40-year high amid a cost-of-living squeeze.

There are some general principles that can help guide your thinking on this important topic:

The first principle is that it’s never too early to start planning for retirement. The sooner you start saving and investing for retirement, the more time your money has to grow. This is due to the power of compounding – which essentially means that your money earns interest on itself over time.

The second principle is that retirement planning is not a one-time event. Your retirement timeline will likely change as life circumstances change. For example, you may need to adjust your timeline if you have children or other family members who depend on you financially.

The third principle is that retirement is not an all-or-nothing proposition. You don’t have to retire completely in order to enjoy a comfortable
lifestyle in retirement. Many people choose to work part-time or pursue other interests during retirement instead of (or in addition to) simply
sitting around and doing nothing.

Time to utilise cash flow modelling?

Planning for retirement is a complex task, made even more difficult by the fact that most of us don’t have a crystal ball to predict the future. This is where retirement cash flow modelling can be incredibly useful. This can help you estimate your future income and expenses in retirement and give you a better idea of how much money you’ll need to have saved in order to maintain your current lifestyle.

By creating a model of your expected income and expenses, you can better plan for your retirement and make sure that you have enough money to cover your costs. This type of modelling can also help you to identify any potential shortfall in your retirement savings, so that you can make adjustments to your plans accordingly.

If you are nearing retirement or are already retired, cash flow modelling can help you: understand how much income you will need in retirement; work out how long your retirement savings will last; determine the best way to use your retirement savings to generate an income in retirement; and find out how different life events (such as taking a career break or downsizing your home) could impact your retirement cash flow.

Would an annuity be beneficial?

Annuities can be a good way to combat rising inflation. Increasing annuities guarantee a stream of income that can offer protection against the cost of living. However, it is important to choose an annuity that has a high enough rate of return to outpace inflation, as otherwise you may end up losing purchasing power over time.

Some annuities offer built-in protection against inflation. For example, some annuities offer cost-of- living adjustments that increase payments to keep pace with inflation. This can help retirees maintain their purchasing power and keep up with the rising costs of living. While annuities are not the only solution for combating rising inflation, they can be a helpful tool for retirees.

Ultimately, whether or not an annuity is a good way to combat inflation depends on your individual circumstances. If you are concerned about preserving your purchasing power in retirement, an annuity can be a helpful tool. However, you should obtain professional financial advice to weigh the costs and risks associated with an annuity before making a decision.

Are you sitting on too much cash?

If you’re sitting on too much cash right now, with inflation on the rise, that cash could be losing value, so you may want to rethink your strategy. Inflation is a natural occurrence that happens when the prices of goods and services start to increase. This can erode the purchasing power of your money, which means that you’ll need more money to buy the same items.

There are a few ways to combat inflation and ensure that your money keeps its value. One option is to invest in assets that may appreciate in value, such as stocks and shares or property. No matter what strategy you choose, it’s important to be aware of the impact that inflation can have on your finances. By being proactive, you can ensure that your money keeps its value over time.

What is your attitude to risk?

When pension planning, your attitude to risk will play a big role in how your portfolio is structured. If you’re willing to take on more risk, you may be rewarded with higher returns. But if you’re not comfortable with risk, you may want to focus on preserving your capital.

Once you have a better idea of your risk tolerance, you can start to allocate your assets accordingly. For example, if you’re okay with some volatility, you may want to put some of your money into stocks and shares. But if you’re not comfortable with any volatility, you may want to keep your money in cash and bonds.

No matter how much risk you’re willing to take on, it’s important to remember that all investments come with some risk. There’s no such thing as a completely risk-free investment. But by understanding your risk tolerance, you can make sure that your portfolio is structured in a way that meets your needs.

Are you ready for retirement?

Retirement is inevitable, but knowing exactly when to do so is often unclear. No matter when you actually begin your retirement, you’ll benefit from planning your post-work life as early as possible. If you would like to review your retirement plans and find out more about our retirement planning services, then please get in touch.

Are you saving enough for retirement?

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  • 4 in 5 are not saving enough for an acceptable standard of living in retirement
  • Less than 5% of low-paid workers are saving at a rate which would provide an adequate standard of living
  • 55% of workers in the finance industry save at or above the ‘whole career’ LP benchmark compared to 2% of workers in hospitality. The ‘whole career’ Living Pension (LP) benchmark proposes either 11.2% of pay, or £2,100 per year for someone working full-time at the living wage.
  • 23% of male workers met the LP cash benchmark compared to 15% of females

For more information on our retirement planning services, please get in touch.

Source data: [1] https://www.livingwage.org.uk/sites/default/files/Living%20Pensions%20Report.pdf

Prepare for your retirement

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Independent Financial Adviser, Carl Hasty, outlines how you can prepare for your retirement including locating lost pensions, considering other income sources and calculating how much you anticipate spending in retirement by using our handy retirement calculator.

To discuss more about your retirement options or to find out more about our retirement planning services, please get in touch.

Retirement Savings Gap

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Four in five workers (16 million people) are not saving at levels which are likely to deliver an acceptable standard of living in retirement, according to research[1] – these numbers exclude Defined Benefit pension savings.

The key reason behind this low confidence is the inability to afford savings on an ongoing basis, followed by worry about paying off existing debts.

Future crisis

Low-paid workers are least likely to be saving at these levels, with fewer than 5% saving at a rate which would provide an adequate standard of living in retirement. Low savings levels are a long-standing issue; however, the cost-of-living crisis is exacerbating the problem.

The UK’s lowest-paid workers have been hardest impacted during the crisis, often struggling to make ends meet. As a result, many are unable to prioritise saving for retirement, and today’s cost-of-living crisis risks storing up a future crisis where millions are unable to afford even the basics in retirement.

Saving behaviour

Just as low pay has impacted female workers most, the gender pensions gap remains an issue. The report found that 23% of male workers met the ‘whole career’ Living Pension cash benchmark, compared to 15% of female workers, and that this is driven principally by differing levels of pay rather than differing saving behaviour.

The Living Pension benchmarks are based on a previous feasibility study by the Resolution Foundation, which proposed a ‘whole career’ benchmark of 11.2% of pay, or £2,100 per year for someone working full-time at the living wage.

Huge variations

The report also highlighted that there are huge variations in whether workers are meeting the Living Pension benchmarks by sector. 55% of workers in the finance industry save at or above the ‘whole career’ cash LP benchmark, compared to only 2% of workers in hospitality.

These differences persist even if they account for variations between sectors in workers’ pay levels, occupation and whether they are full-time. This suggests that sector differences in pension saving are driven either by employers’ behaviour or their approach to the overall renumeration package.

What if I could have the retirement I really want?

Planning so that you can enjoy today, whilst making sure there is plenty saved for the future, can be a tricky balance to get right. If you would like advice and support with retirement planning, please get in touch.

Source data: [1] https://www.livingwage.org.uk/sites/default/files/Living%20Pensions%20Report.pdf

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.

Busting the myths about pensions

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If you are approaching retirement age, it’s important to know your pension is going to finance your future plans and provide the lifestyle you want once you stop working. Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics.

Many of us have made pension provision, but some of us don’t know very much about the details. To help you get a handle on some of the myths around pensions, we’ve got answers to some of the things you may have been wondering about. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Myth: The government pays your pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

  • Retired post-April 2016 full rate State Pension of £185.15 a week
  • Retired pre-April 2016 full rate basic State Pension of £141.85 a week (a top-up is available for some, called the Additional State Pension)Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Myth: Your employer pays your pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary. If you keep your contributions at the minimum level, it might be difficult to save enough for retirement.

As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Myth: You can’t save more than your lifetime allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1,073,100 (tax year 2022/23). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, it was announced in the Spring Budget 2023 that this will be abolished from April 2023.

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower-risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Myth: Annuities are outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings. But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. That’s a crucial benefit for many pensioners.

Myth: You can’t pass on a pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity (for example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one. If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Get in touch

If you would like more information on our pension planning services or are looking for financial advice, then please book a chat.

Tax Year End

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Tax Year End Checklist – Have you made use of your 2022/23 Allowances?

  • ISA allowance: £20,000pa
  • Junior ISA allowance: £9,000pa
  • Pension annual allowance: £40,000*pa (*or 100% of your earning and this allowance varies for higher rate tax payers and business owners.)
  • Check your carry-forward pension allowance
  • Check your pension lifetime allowance status (£1,073,100)

For more information on our tax planning services, please get in touch.

Retirement and Tax Planning

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Managing Director and Chartered Financial Planner, Michael Cope, discusses tax planning in retirement.

For more information on our retirement planning services or our tax planning services, please get in touch.

Asset Allocation

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What is asset allocation and diversification?

Asset allocation involves diversifying your investments among different assets, such as equities, bonds, property and cash. Asset allocation may change depending on what works for you based on your financial goals and your ability to tolerate risk.

  • Cash: Cash equivalents and other forms of money can be easily accessed at any time.
  • Equities: Purchasing shares on the stock market, typically traded on the Stock Exchange.
  • Bonds: A fixed-income product representing a loan made by an investor, typically corporate or governmental, for a fixed period.
  • Property: Buying properties intending to make money e.g. rental income or selling a property.

When building our portfolios, we consider all the economic and technical market conditions that influence our exposures to the main asset classes of Ellis equities, bonds, property and cash.

We screen and choose all our funds, not just our Socially Responsible Investment portfolios, against a range of Environmental, Social and Governance (ESG) factors so you can see the impact your investments are having.

Read more on our screening process for sustainable investment funds.

Retiring Early

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Retiring early can give you that change of lifestyle you’ve been craving, but requires some careful planning. Financial Adviser, Andy King, discusses how he helped a client by discovering that they could retire early.

If you are unsure whether you can retire early, use our handy retirement age calculator to see how much you may need to save.

Worried about generating a retirement income?

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Worried about generating a retirement income? More over-50s returning to work amid cost of living crisis.

Older workers have been leaving the jobs market in their droves over the past two years, partly due to many re-evaluating what they want from their lives and careers during the course of the COVID-19 pandemic, and also due to the devastating impact the pandemic had on the prospects for many older jobseekers, who felt they had no choice but to leave the workforce.

But the cost-of-living crisis is now affecting some pensioners drastically, with more older people starting to return to work amid the ongoing crisis, new research has highlighted[1]. The findings identified economic activity levels among the over-50s are now at their highest since the pandemic began.

Impacting pensions

Analysis of official statistics appears to show the first signs of a return to the long-term trend of more economically active people over the age of 50 – a decades-long trend which, it said, was reversed by the pandemic.

Spiralling inflation and turbulent financial markets impacting pension funds are causing some people to unretire and find work again. There has been an increase in economic activity (those in work or looking for work) of 116,000 among the over-50s in the past year. More than half of the increase is being driven by men over the age of 65.

Retiring comfortably

In some ways, the pandemic forced the hands of many and gave them an opportunity to trial retirement. An early retirement can often seem like a dream when you’re stuck in the thick of the daily grind but, for many, giving up work abruptly can also result in a loss of structure, social connections and purpose, which can leave people feeling lost at times.

The current economic climate means that some people who thought they could retire comfortably during the pandemic are now having to unretire and find work again to bring in some extra income and top up their pensions while they still can.

Want to discuss how to make your money work for you?

If you’re getting ready to retire, or maybe you’ve already retired, now may be a good time to think about professional financial advice. It can take some of the worries out of retirement planning and ensure your money will go further. So if you have any concerns about your retirement, we can help make your money work for you. To talk to us, please contact us – we look forward to hearing from you.

Source data: [1] Analysis by www.restless.co.uk – Economic activity levels amongst people over the age of 50 hit their peak of just over 11 million just before the pandemic in the three-month period from December 2019 – February 2020. Since then, we have seen a decades-long trend reverse, with economic activity levels of workers aged over 50 falling by as much as 223,000 during the pandemic.