Navigating the retirement maze
One question many of my female clients ask is ‘How much does a comfortable retirement cost?’ As people start to reflect on their life after work, often when their children are less dependant and they can afford to enjoy more freedom to travel and take time out for themselves, it is easy to fall into the trap of believing that any spare income will always be there and your good health will continue!
For many, by the time they actually sit down to analyse how much they need for retirement, the options are saving more or retiring later!
What is clear to me is that everyone’s circumstances are different – maybe they have a very physical occupation or a high stress one….maybe they have had some health issues which change their mind set…..or maybe they have inherited some money and lost loved ones which may enable them to retire earlier than state pension age.
Most of my female clients, by the time they reach their 50s may have several different types of pensions and savings, across a range of products and strategies. When I first meet with them they don’t always understand how much they will provide in terms of an income in retirement, or in fact what their options are. Most know they could access a tax free lump sum at retirement and often seem to have ‘earmarked’ this for something special or maybe to repay mortgage or other debt. Taking the tax free lump sum in this way (often 25% of the value of your funds) can massively reduce the ‘pot of money’ available to provide an income to live on for probably 30 years plus!
Saving into pensions is currently one of the most tax efficient ways of accumulating wealth for financial security in retirement. Your contributions will attract tax relief at your highest marginal rate of income tax (and everyone loves saving tax), plus it will grow free of income tax, capital gains tax and be outside of your estate for inheritance tax (so great for succession planning). With all these tax advantages, you would think more of us would be doing our best to save into pensions; but so many choose cash savings/bank accounts, buy to let properties, relying on an inheritance or worst still don’t contribute anything apart from their workplace pension! Maybe it is because of all the confusing jargon, ‘annual allowances’, ‘drawdown’, ‘annuities’, ‘tapering’, ‘carry forwards’ etc – a good adviser will simplify all of this and make sure you understand it and make it work for you.
Risks to consider include inflation and stock market volatility. Once you retire you need your investment funds to grow ideally in line with inflation so that your income can grow and maintain its ‘real value’ over time. With recent higher inflation we have all noticed how our hard-earned money doesn’t go as far during the cost of living crisis – so to make sure you have this covered in retirement is very important. Also, when stock markets fall, many of my clients use a bucketing strategy, so that they have a plan to cover their short term needs from shorter term, more accessible cash savings.
Understanding what you have and how to make the most of it, including being invested in the right investment funds, paying the right charges and choosing the right solutions is key to all of this. How confident are you that you are on track to achieve sufficient retirement income, and at what age can you achieve this?
Speaking to an expert who will look holistically at all of your assets, will help you plan for the future, achieve your goals, and sleep easy at night! Maybe that holiday of a lifetime, new car or helping your family are all achievable.
If you need advice, please get in touch with CL4Women.