BUILDING FINANCIAL FUTURES FOR
People seeking retirement planning
Work out the amount you need
Firstly, you need to consider what income level you are targeting in retirement, together with any capital needs you may have. This can be more difficult than it sounds; to help, ask yourself the following questions:
- Will I stop work completely?
- Is there a possibility of part time employment or adhoc consultancy work?
- What level of income do I actually need to live comfortably?
- Establish if there are any aspirational needs, such as luxury holidays or additional lifestyle needs?
- Are there any known capital expenditures; such as, mortgage repayment, a new car, education for grandchildren?
- Is my spending likely to vary over time? It is common to see a ‘U’ shaped curve in retirement spending with more being spent in the early years and rising again should long term care be required.
- How is my health and what is a realistic life expectancy? Longevity is the million-dollar question and many people underestimate how long they will live for.
- Do I want a secured fixed income or do I prefer more flexibility?
- Is leaving a legacy for future generations important to me?
Understand the savings you have built up to date
Throughout your working life you are likely to have built up a number of pension pots, both privately and via workplace arrangements. These may be a combination of Money Purchase funds and Defined Benefits, together with State Pension Benefits built up from National Insurance contributions. You can read more about pension consolidation here.
You can check your National Insurance contribution record by following this link: www.gov.uk/check-state-pension.
The government has developed a free pension tracing tool that can be found at www.gov.uk/find-pension-contact-details If you know the relevant employer or pension scheme, you should be able to find the contact details you require.
Of course, there are other ways to build up your retirement provision, including stocks, shares, Individual Savings Accounts (ISAs), property and other specialist investment arrangements.
Ideally, a wealth portfolio will hold a range of investment vehicles offering various tax saving opportunities, therefore increasing the income sustainability from these funds.
It is important to gather together your own financial records and create your own retirement dashboard, which you can do via Tideway Online (Our portal and App) will also help you identify any shortfall in savings.
Is there still time to boost your retirement pot?
Even if retirement isn’t far away, it is still possible to boost your retirement savings (including your state benefit entitlements, by making voluntary contributions).
There is generous tax relief on personal and employer pension contributions, meaning that some of your money, which would have been paid to the government as tax, is redirected into your pension instead. Annual and lifetime limits on how much tax relief is permitted on contributions; up to 100% of your earnings or £60,000 per annum, whichever is lower.
It may also be possible to carry forward unused allowances from the previous three tax years, provided you were a member of a pension scheme during those years.
Understand your tax position
You’re free to withdraw 25% of your pension savings as a tax-free lump sum, after which any further withdrawals over your annual income tax allowance will be taxed at your nominal rate. The alternative is to use your pension savings more flexibly, including the ability to phase your tax-free cash over time.
In this instance, 25% of a withdrawal will be tax-free and the remaining 75% will be taxable at your highest marginal rate. This process can be repeated until all of the tax-free cash element is utilised.
However, there are additional tax allowances and reliefs applying to other investment vehicles which, if available, should be exploited. Utilising these allows for further tax planning opportunities and the ability to mitigate tax due, meaning that your savings could last for longer.
Taxation can be a minefield, and seeking advice will help you understand how to manage your income tax position effectively. At Tideway, we often talk about generating tax-efficient income in retirement and indeed, much of our work is centred around providing this advice.
Seek financial advice and make a plan
Planning your retirement is one of the biggest financial events we plan for in our life, and it’s not something that should be left to chance. It can seem like a minefield to find the information to equip you to make the right decisions for yourself.
Tideway are here to help guide investors; our discretionary investment management service offers extensive experience in the industry together with access to cost-effective investment solutions. Importantly we take away the burden of researching the market place and making the necessary investment decisions.
We specialise in retirement advice, offering each client their own dedicated Wealth Manager who is responsible for formulating a bespoke plan within an appropriate investment strategy and risk profile.
We feel passionately that your retirement should be something to look forward to and not a daunting experience; as such we offer free retirement Guidance Sessions to help you plan for the years ahead. If you or someone you know wishes to take advantage of this service, please book below.