In our latest blog, PM+M financial planning director, James McIntyre, explores what you can do to ensure you have sufficient funds available for the lifestyle you require when you retire.
I don’t know about you, but the weeks and months seem to be flying by!? The consequence of this being that it can be hard to find time to prioritise your own personal financial planning needs or find time to consider your future. This is where your financial adviser can step in and assist.
What do I want from retirement?
The first step, prior to implementing a plan, is to consider what you want from your retirement. If you know when you plan to retire and have a general sense of how much income will be required to fuel the desired lifestyle and necessary standard of living, you can work backwards and determine how much you need to save.
A cashflow analysis can help give you a sense of direction i.e., to understand how much you should be investing, for how long and the required growth rate (pre and post retirement) to ensure sustainability throughout retirement.
We can also provide some “what if analysis” to test various scenarios e.g., what if I want to retire earlier, what if there was a market crash or what if I didn’t achieve the required growth rate.
This will then enable you to start saving the right amount, have a sense of when you might be able to retire and understand what growth rate is required.
As we all know, inflation is not our friend, and we are all feeling these pressures. According to the Bank of England, the cost of a loaf of bread has more than doubled over the last 30 years. Therefore, investment growth is going to be essential to maintain the value of your wealth in real terms, as well as to build it ahead of inflation.
If you invest £100,000 and achieve a net growth rate of 4% pa., it would be worth c. £148,000 after 10 years, but c. £163,000 if a growth rate of 5% pa. is achieved. Your cashflow analysis will help indicate what growth rate you need to achieve to meet the retirement needs you require. But remember, there is a trade-off between risk and reward. Higher risk investments have great growth potential but could also be subject to greater volatility.
It’s important to ensure that your investments are also fit for purpose; your financial adviser can help ensure that they are invested in the right way.
You can potentially contribute up to £20,000 per annum into an ISA and potentially up to £40,000 pa. into a pension. It’s important that you are making the most of your allowances and benefiting from tax efficiency wherever possible.
But it’s important to speak to your financial adviser as there are certain stipulations and pitfalls when it comes to allowances, for example:
- The pension annual allowance tapers downwards for high earners
- If you have already accessed your pension, you may be restricted
- Employees need to have relevant earnings to back up any pension contribution
It’s worthwhile using the Gov.uk online tool to see whether you are on track to receive a full state pension, click here. If you aren’t, you may be able make additional voluntary national insurance contributions to fill any gaps you may have in your record. These generally represent great value for money and the break-even point in retirement could be around 4 years.
Do you need some help?
If you want to understand what is required to ensure that you have sufficient funds to enjoy the retirement you want, and deserve, please get in touch by clicking the button below.