Retirement planning is about making sure that you have enough money to live on after you finish work. But it goes further than that - most people want to live and not just survive, so building a retirement fund should be one of life's major goals.
Let's be clear, this is not just about pensions, it is about building, storing and preserving wealth to create income in the future.
Planning for retirement?
Pensions are one of the most tax-efficient long-term savings vehicles, but also probably the least well understood. How would you like a savings plan that offered these benefits?
- Payments attract Income Tax relief to increase the value of your payments by 20% (known as "tax relief")
- If you pay higher rate (40%) tax or additional rate (50%) tax you get the higher rate refunded
- You don’t have to buy into a second-rate Insurance Company managed fund - you can invest in listed UK shares, gilts, 3000 unit trust funds, commercial property or even gold
- You won’t pay any capital gains tax on your investment growth
- When you retire you can take 25% of the fund tax free as a lump sum
Sounds like a pretty good deal, doesn’t it? And the costs are now lower then ever as a result of using technology driven solutions, which are explained here.
So how much should you aim to save for retirement? Well that depends on how long you plan to live and how much you need to live on.
We can help you calculate how much you need in assets by retirement age to live a comfortable and secure future, and then create a plan tailored to what you are able to afford.
However there are other approaches too...
What about Property?
Some people store their wealth in property so that at retirement they can downsize and release capital, or buy properties to rent out and create an income stream this way. This works for many people because they understand property and can see the asset there each time they drive past it.
Between 1997 and 2007 property had a long steady period of growth in the UK. However just like in the early 90's it is in the middle of a 5 year plus decline. Property cycles are longer and slower than other markets but don't be fooled into believing that they don't exist. These are the downsides:
- Property needs to be maintained and you need to set aside 2-5% of the income each year for general maintenance, and 30-50% of the annual income every 5 years for more major refurbishment
- Income from property is taxable the same as other investment income, and any gains you make on the capital value are taxable too. Don't forget to factor in the taxman.
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Property is notoriously illiquid, meaning that you can't easily make partial withdrawals, and selling can be a long and expensive process.
Retiring now?
As you approach retirement you will have some important and life-changing decisions to make. It isn't possible to overstate the importance of good financial advice at this time because some of these decisions may be permanent, i.e. once set up they can't be changed.
Annuities, drawdown or ...?
For many people a guaranteed income for the rest of their lives with no complications and no investment decisions to makes Annuities an attractive proposition. Buying an annuity provides a straightforward income that can be protected against inflation and provide for your spouse too.
Few people realise that they don't have to buy a pension annuity from their pension provider, and we specialise in seeking out the best income from the market using the Open Market Option built in to most pensions. Don't assume that you are automatically being offered the highest annuity, let us check it for you. Have a look at our annuity case study.
For others, losing control of a large pension fund or the inflexibility of a fixed pattern of income is a disadvantage, and they prefer the flexibility of Income Drawdown.
And there are some who want the best of both worlds who may find a "3rd Way" guaranteed income product the best option.
Whatever your preference we will take time to discover your needs and outline your options, to make sure that you make the right choice, before helping you to put your plans in place.
So come and speak to us now about taking control of your future.
Read HSBC's report on retirement planning in the UK - "The Future of Retirement"
