Ellis Bates Financial Advisers
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Director of Financial Planning, Ben Clapham, discusses how he helped to enhance someone’s life by helping them with their retirement planning.
Put simply, an individual’s life can be split into two phases: the accumulation phase, and the decumulation phase.
| Accumulation Phase | Decumulation Phase |
| Most retirement planning advice focuses on the accumulation phase – that is, how large a pension pot will need to be; and, to achieve that size of pot, how much you will need to regularly save and in which assets you must invest those savings. | During this phase, you start to rely on their savings to finance all or part of their living costs. Within this, there are two main objectives:
Ensure you enjoy the best quality of life possible. Ensure you do not outlive your savings! |
There are many uncertainties that can complicate your and your Adviser’s decisions when planning a long-term investment strategy.
Many individuals will retire with a number of different assets and savings vehicles such as a pension, ISA, cash accounts and property. Each type is subject to different risk/return profiles, as well as different tax treatments with regard to income, capital gains and inheritance tax.
While some people may find that the income provided by external sources is sufficient to cover their day-to-day expenditure in retirement, others may want or need to draw on their EB portfolio – some may draw down the capital, while others may rely solely upon the income generated by the investments (the ‘natural income’) and seek to leave the capital intact.
Whichever approach is taken, a strategy that is suitable for you today may not be suitable in the years to come, due to factors such as inflation.
This is demonstrated in Figure 4 and Figure 5. These charts assume:
Withdrawing 5%, inflation 0%, investment growth 4%
Withdrawing 5%, inflation 2%, investment growth 4%
A general rule of thumb is you can withdraw up to 4% a year if you do not wish to run out of money during your lifetime. This is based on average life expectancy, and accounts for 25 years of returns even without any growth in markets – in reality, the long-term average for portfolios is greater than this, and we would expect above-zero returns in most years over the long term.
That said, there may be circumstances when someone can withdraw more each year (say, 8% – for example, they have a short life expectancy, as shown in Figure 6) or less (say, 2% – for example, they wish to keep the capital value of their remaining portfolio intact).
Withdrawing 8%, inflation 2%, investment growth 4%
Whatever your investment experience, our teams are here to help and support you on your investment and retirement journey. Find out more about investing with Ellis Bates Financial Advisers, or alternatively please get in touch by filling out the form below.
Income investing is often thought of as a way of creating an income in retirement. It is also a valid strategy to generate an ongoing stream of income at any stage of an investor’s life – whether that’s to boost your existing income, to accommodate for unexpected life changes, or to cover a known expense such as a holiday.
Investing for income involves investing a capital sum, from which you then make withdrawals at regular intervals (e.g. monthly or quarterly). These withdrawals may be for
At Ellis Bates, we appreciate that every client is different, and as such you need a portfolio to meet your individual circumstances. We provide a range of portfolios to suit different attitudes to risk and objectives, whether it is for capital appreciation, income generation, or a combination of the two.
If you require a regular income, our Income portfolios may be an ideal investment strategy.
Our Income portfolios are invested in a diversified range of assets (e.g. bonds and equities), by geography/region, company size, investment style and fund house, among many other considerations, to ensure that the income generated by your portfolio is not reliant on any single area of the market.
We seek stable investments that are paying out relatively reliable dividends on a regular basis.
That said, in our view, it is important to look beyond the yield. This is because companies generally set their dividend as a monetary amount.
Example:
If a company is paying £1 in annual dividends and its share price is £25, then its dividend yield is 4% (i.e. £1 / £25).
However, if the share price falls to £10 for whatever reason, the dividend yield is now 10%.
If this share price fall relates to something fundamentally weak with the company, then this may not bode well for the dividend, which the company may need to cut or suspend entirely in order to shore up its finances until conditions improve.
One key consideration is debt levels (also called gearing or leverage). Companies with higher levels of debt may struggle to keep paying a dividend over the long term, particularly if that debt is being used to pay the dividend. As interest rates rise, the debt may become much more expensive to service, which could put the dividend under pressure.
Each of our funds must make distributions every six months or more frequently (e.g. quarterly or monthly), so that we can pass these payments onto you on a regular basis, as needed. If you choose to withdraw the natural income from your investments, the amounts may fluctuate over time due to these differences in the distribution frequencies.
As well as paying a dividend, our blend of funds has the potential to deliver capital growth over the medium to long term.
We put you, and what you want your money to achieve, at the very heart of everything we do. The most important part of our investment philosophy is listening to your dreams and aspirations. Find out more about our investment services and see how our in-house Investment Team can help you.
Here are the top four things you can do to prepare for retirement:
One of the most important things you can do is to create a realistic budget that will help you track your expenses and income. This will allow you to identify any areas where you can cut back and save more money for retirement. By tracking your spending and income, you can create a plan that helps you save for a comfortable retirement.
As you approach retirement age, it’s essential to explore the various ways you can convert your pension savings into a retirement income. There are several options available, such as annuities, income drawdown and immediate vesting personal pensions. Seeking professional financial advice will help you understand your options better and make informed decisions about how to access your pension.
As retirement approaches, it’s essential to reduce exposure to higher-risk assets such as equities. By reviewing your asset allocation, you can adjust your investments to make sure you have a well-diversified portfolio that is designed to provide steady income for your retirement years.
Regularly reviewing your progress is crucial to ensure you are ready for retirement and make the necessary adjustments if needed. Changes in your income, expenses or the financial climate may require you to adjust your plan. By following these four tips, you can set yourself on a path to financial security for your retirement years.
By planning ahead and taking the necessary steps, we can help you build a robust retirement plan. To tell us about your retirement planning goals and discover how we can help you, please book a chat. Alternatively, watch our video on “the benefits of financial advice when planning retirement“.
Taking financial advice can help clear any confusion when planning for retirement. Financial Planner, Gary Davies, explains the overall benefits of financial advice when planning for retirement.
Read our latest article on “financial wellbeing“, which outlines how taking control of your finances and considering financial advice will enable you to meet your financial goals and improve your overall financial health.
More than 24.5 million people are financially disengaged.
Do you often review your finances? Or are you one of those people who just hope for the best? Although managing finances may not be the most exciting activity, keeping track of your financial wellbeing can make a significant difference to your life, both in the present and in the future. Taking control of your finances and considering financial advice will enable you to meet your financial goals and improve your overall financial health.
Worryingly more than 24.5 million people (46%) feel financially disengaged, according to new research[1]. The study also shows that one in 20 adults – the equivalent of 2.4 million people – were previously financially engaged before changing their behaviour[2].
Key reasons for this change include feeling financially secure enough to be less diligent with managing their money (20%), or because other areas of their life have become busier (18%). However, almost a fifth (17%) couldn’t state a reason.
But previous periods of financial uncertainty, such as recessions, were stated as the key driver for people becoming financially engaged (27%), so the current cost of living crisis could mean people keep a closer eye on their money.
Almost two-thirds of respondents (62%) said they regularly check their household budget and their spending, while 73% shop around for the best deal, or use discount codes and vouchers (64%). On average, pre-retirees (those aged 55+ who are still in work) are more financially engaged than the rest of the population (62% compared to the UK average of 54%).
But many are still inactive when it comes to their retirement planning, suggesting people might not know where to start. More than a third (34%) do not currently check their workplace pension while 28% do not currently review their personal pension.
Separate research shows one in five people still reach midlife without having engaged with their retirement at all[1]. Taking small steps to improve your money habits can have a huge impact on your life. It can also help you feel more in control of your financial situation.
Against a landscape of rising costs and record levels of inflation, it can be easy to bury your head in the sand. However, as the research shows, periods of financial difficulty can be one of the leading reasons people take charge of their finances and seeking professional financial advice can help you to create a robust financial plan.
While it’s positive that pre-retirees, in particular, are more financially engaged than the average person, it is concerning that they aren’t engaging in vital steps to prepare for retirement, such as checking their pension.
This is the first step of the decumulation phase; however, some people could be leaving themselves at risk of not knowing their full financial picture or how to actively manage their retirement finances when they get there. The decumulation phase is an important aspect of retirement planning that many people overlook.
During this phase, we convert our assets into income streams that will fund our retirement. With advances in healthcare and an increase in life expectancy, it’s becoming more important than ever to plan for a longer retirement. Investment can play a crucial role during the decumulation phase.
It’s important to continue making our money work hard even after we retire, so that we can meet our financial needs and maintain our standard of living. A well-diversified investment portfolio that balances risk and return can help us achieve our retirement goals.
To enjoy the decumulation phase with greater confidence and peace of mind, it’s important to have a realistic projection of income flows and expenses. This means creating a budget that takes into account expected income from sources such as Social Security, pensions and investment income, as well as our estimated expenses for healthcare, housing and other living expenses.
Preparing for retirement can be a daunting task, but by following a few simple tips, you can make sure you’re on track to living out your golden years in comfort and security.
By planning ahead and taking the necessary steps, we can ensure that we have a comfortable retirement. Read our tips on “preparing for retirement”.
Important Information: The value of your investments can go down as well as up and you may get back less than you invested. The tax treatment is dependent on individual circumstances and may be subject to change in future. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
Source data: [1] Research was carried out online by Opinium Research amongst 4,000 UK adults aged 18+ between 14″20 October 2022. 1,856 participants indicated that they were financially disengaged in the survey. 1856/4000=46%, which equates to 24,541,000 UK adults.
[2] 181 participants indicated that they were financially disengaged in the survey. 181/4000=5%, which equates to 2,390,000 UK adults.
[3] Opinium survey of 4,009 UK adults aged between 40 and 60 years old in the UK was conducted between 28 December–6 January 2021.
Many over-55s are unaware that they can access 25% of their pension pot tax-free.
A surprising 43% of individuals over 55 need to be made aware that they can withdraw 25% of their pension pot tax-free, according to recent research[1]. Knowledge could lead to better decision making when it comes to accessing pension savings.
Similarly, 52% of those surveyed between the ages of 50 and 54 were also unaware of this rule, indicating a widespread lack of understanding about pension withdrawal options.
We answer the important questions regarding tax-free pension withdrawals.
Typically, most people can withdraw 25% of their total pension pot tax-free, although this may vary depending on the type of pension plan and if you’ve exceeded your lifetime allowance. The remaining 75% is subject to Income Tax when withdrawn.
Generally, you can access your pension savings, including the tax-free lump sum, at age 55 (rising to 57 in 2028). In rare cases, you may be able to access your pension earlier due to ill health or a protected scheme.
This depends on your pension product and its terms. Taking smaller withdrawals over time can be beneficial in most cases, as it allows for potential growth and tax-efficiency.
It’s essential to consider the longevity of your pension savings throughout retirement. Taking too much too soon could result in running out of funds later in life. Delaying access to your savings may allow for additional growth.
Accessing your pension savings can impact state benefits, such as Universal Credit or Pension Credit. Additionally, taking a tax-free lump sum won’t affect the amount you can contribute to your pension plan, but accessing taxable income may reduce your annual allowance.
Understanding your pension withdrawal options and seeking professional financial advice will help you make informed decisions and maximise your retirement savings. To learn more about how we can help you, please contact us today.
Source data: [1] Opinium conducted research among 2,000 UK adults aged 18+ between 12″16 May 2023 for Standard Life, part of Phoenix Group. Results have been weighted to be nationally representative.
Important information: 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.
Retirement planning can seem complex and overwhelming. We have some top tips that you might want to consider if you are planning for your retirement:
Read our article on “how much do I need to retire?” for more information on retirement planning.
Financial advice is very important when you retire because it is key to making sure that your investments and pensions are held at the right risk level to make sure it is sustainable for your retirement. Read our latest article on “how much do I need to retire?” for more information.
Try our retirement calculator and receive a personalised retirement report in 5 minutes which will help you consider your emotional and financial needs in retirement and explore the different ways you can fund your retirement.
If you would like to speak to one of our expert Financial Advisors about planning for your retirement, then please get in touch.