Retirement

Time to kickstart your retirement plans? 

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Time to kickstart your retirement plans? 

Retirement signifies a well-deserved achievement, a significant turning point in life. It should be a period of anticipation and joy, an opportunity to indulge in activities that bring happiness and contentment. Currently, retirement is marked by increased flexibility in accessing your pension savings. While this offers many choices, it also gives rise to numerous queries. 

Retirement planning, accompanied by crucial decision-making and understanding various options, might seem daunting, especially with the escalating cost of living affecting several financial plans. This is where the value of professional retirement advice comes into play. We can help you simplify major decisions by clarifying your options, instilling confidence in your choices and ensuring they are beneficial and tax-efficient. 

Retirement Lifestyle 

With the UK witnessing record-breaking inflation in food and fuel prices, the rising cost of living undoubtedly influences our financial plans. If retirement is on the horizon, apprehension about increasing inflation, interest rates and the potential impact of the cost of living crisis on your retirement lifestyle is quite natural. 

We can guide you in such circumstances and assist in determining an achievable retirement date based on your total income and expenses. When you include all your potential income sources, not merely your pension savings, you might discover the possibility of retiring earlier than anticipated or gradually reducing work hours before fully retiring. Even if immediate retirement is outside your agenda, we can help you understand when you can afford to retire. 

Income Sources 

We’ll work with you to analyse all your income sources to estimate your possible annual income post-retirement while ensuring you have sufficient funds for as long as you need. Income sources will likely include pensions, your entitlement to a State Pension, and any savings or investments like Individual Savings Accounts (ISAs). Rental income from a buy-to-let property may also be an option, in addition to any equity in your home that you’re willing to release, either through downsizing or equity release. 

As your retirement may last 30 to 40 years, ensuring your income lasts throughout this period is crucial. As we’ve witnessed over the previous few years, inflation rates have reached double-digit figures, so ensuring your money is working hard for you is more important than ever. 

Beat Inflation 

Investing a portion of your money during retirement also offers growth and an opportunity to beat inflation. This is where our professional advice is essential, helping to ensure your money is invested wisely and that your investments align with your retirement plans. However, remember that investments can fluctuate in value, and you may get back less than you initially invested. 

Overpaying taxes in retirement is another common pitfall. For instance, if you withdraw more from your pension savings than necessary, you could pay more tax than required. 

We can guide you through this, ensuring you draw your retirement income in the most tax-efficient way. However, bear in mind that tax laws and legislation can change. Your circumstances, including your location within the UK, will significantly impact your tax treatment.

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Millions may have to rethink their retirement plans

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More than one in ten have mortgage debt in the final decade before they retire

Two-thirds (67%) of Britons admit to having debt that is weighing them down, according to a recent study*. Additionally, nearly one in ten (9%) adults in the UK are unsure about the amount they owe in outstanding debts, rising to more than one in six (16%) among those aged 45 and over.

Credit or store card debt is the most common form of debt, accounting for 32% of respondents, followed by personal loans (16%), overdrafts (15%) and unpaid household or utility bills (10%). Surprisingly, more than one in ten (11%) individuals aged 55 and above have mortgage debt in the final decade before retirement.

Impacting retirement plans and financial security

Having debt can significantly impact retirement plans and financial security, leading to increased stress and reduced income in retirement. Taking proactive measures to reduce debt before entering retirement is essential. These actions include consolidating debt, paying off high-interest loans, reducing unnecessary expenses and working with financial advisers to create a comprehensive retirement plan.

Funds to cover unforeseen expenses

Comparing results from 2021 to 2023, the survey found that debt has increased among 52% of 45-54-year-olds. However, respondents have also tried to address their debt situation, with 38% cutting back on non- essential spending, 21% working overtime or getting a second job, and 13% seeking advice from debt services or helplines.

Furthermore, unexpected bills have posed challenges for many individuals, with 31% of Britons paying an unexpected necessary bill of £850 or more in the past 12 months. While 57% of UK adults claim to have emergency savings, only 24% used these funds to cover unforeseen expenses.

Importance of managing debt effectively

Instead, 19% relied on credit cards, 11% sought help from family or friends, and 8% took out loans or used their overdraft. Additionally, 5% resorted to payday loans, and another 5% cashed in their pensions to manage unexpected costs. These findings highlight the importance of managing debt effectively and planning ahead to ensure a secure financial future.

Looking for a financial advice tailored to your needs and goals?

Navigating the world of finance can be daunting, with numerous options and decisions to make. That’s where we come in. We offer personalised financial planning and advice tailored to your needs and goals. To learn more about how we can help you, please don t hesitate to contact us.

*Source data: The research was conducted by Censuswide between 20–24 April 2023 of 2,009 general consumers, aged 18+, national representative sample. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.

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Debt and Retirement Planning

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Navigating the world of finance can be daunting, with numerous options and decisions to make. That’s where we come in.

Get in contact to discuss your retirement planning needs:

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Retirement Cash Flow Modelling

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Assessing your current and projected wealth, income and expenses 

Retirement planning is of utmost importance, regardless of your income or wealth. It ensures a steady income stream after retirement and provides financial security for you and your loved ones. 

Retirement cash flow modelling can provide numerous benefits to individuals seeking financial security and planning for the future. By assessing your current and projected wealth, income and expenses, retirement cash flow modelling can help you understand your current and potential future finances. 

Here are some of the key reasons why retirement cash flow modelling is crucial: 

Avoid running out of money: Planning helps you calculate the savings rate required to support your desired lifestyle during retirement, ensuring you don’t run out of money. 

Setting retirement income goals: This involves determining your retirement income goals and identifying the necessary steps to achieve them. This allows you to plan for various financial sources and secure a comfortable retirement. 

Creating a regular flow of income: A well-structured and regularly reviewed plan enables you to create a regular flow of income after retirement. This fixed income substitutes your pre-retirement salary, ensuring financial stability. 

Strategic investment decisions: Retirement planning involves making strategic investment decisions to achieve specific savings goals. This helps in maximising returns and growing your retirement fund over time. 

Financial security: By having a solid retirement plan, you can provide yourself and your loved ones with financial security. This is particularly important as more than social security benefits is needed to sustain your desired lifestyle. 

Enjoying a comfortable retirement: A comprehensive retirement plan has the potential to allow you to enjoy a comfortable retirement, free from financial worries. It provides the means to pursue your desired activities, travel and maintain a high standard of living. 

Reviewing existing pension arrangements: Regularly reviewing your existing pension arrangements and taking the required steps can significantly affect the amount of money you’ll accumulate for retirement. Seeking professional help can ease the process and ensure you make informed decisions. 

How retirement cash flow modelling can work for you 

Managing accumulated wealth: If you have accumulated wealth, retirement cash flow modelling can assist you in effectively managing your financial position and making informed decisions as you retire. Long-term planning: Cash flow planning is especially beneficial if you have long-term personal or business objectives. It lets you determine how much you need to save and the returns required to meet those goals. 

Care home fees planning: Cash flow modelling can also be used for planning care home fees, helping you understand the financial implications of such expenses and prepare accordingly. 

The retirement cash flow planning process involves: 

■ Assessing your current financial situation, including income, expenses, assets and liabilities. 

■ Understanding your future financial commitments and goals. 

■ Creating a lifetime cash flow modelling plan tailored to your needs. 

 ■ Providing a comprehensive analysis of your income, expenditure and potential future cash flow. 

■ Working towards achieving and maintaining financial independence. 

■ Adequately addressing the financial consequences of death or disability. 

■ Minimising tax liabilities through effective planning. 

■ Developing an investment strategy for your capital and surplus income. 

■ Identifying Inheritance Tax issues that may impact your beneficiaries. 

Answering critical questions 

Ultimately, retirement cash flow modelling helps answer critical questions such as whether your savings and assets are sufficient to support your aspirations, if you can retire early, if your investment risk is appropriate and if you will have enough money to sustain yourself throughout retirement.  

Are you looking to create your retirement cash flow plan? 

Contact us now for more information. We assist you in analysing your current financial situation and creating a customised plan to ensure your retirement meets your goals. If it turns out that your cash flow plan falls short, don’t worry we have various retirement planning strategies to help get you back on track. 

Get in touch to find out more:
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The Retirement Cash Flow Planning Process

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Are you looking to create your retirement cash flow plan? 

Contact us now for more information. We assist you in analysing your current financial situation and creating a customised plan to ensure your retirement meets your goals. If it turns out that your cash flow plan falls short, don’t worry we have various retirement planning strategies to help get you back on track.

Get in touch to see how we can help:

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Building A Reliable Income for your Golden Years

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Annuity Shopping

When it comes to using your pension pot, buying an annuity is one option that provides a regular and guaranteed retirement income for either your lifetime or a fixed term. However, it’s important to note that purchasing an annuity is typically an irreversible decision.

Do you know that shopping around for an annuity could earn you £15,000 more over your retirement? Recent analysis has shed light on the benefits of exploring your options regarding annuities. Therefore, it becomes crucial to carefully consider your options, select the appropriate type of annuity and strive to secure the best possible deal.

Valuable tool for retirement planning

Annuities are a valuable tool for retirement planning as they offer a reliable and predictable income stream, often lacking in other investment options. Furthermore, certain annuities can be linked to inflation rates, providing stability during periods of economic volatility. This makes annuities attractive for individuals prioritising risk aversion in their pension savings strategy.

The primary difference between annuities and pension drawdown products is that annuities require using the entire pension pot to purchase an insurance product that provides a fixed retirement income. In contrast, pension drawdown products allow flexible income withdrawals with the remaining funds invested.

Balance security and flexibility

Unlike pension drawdown arrangements, annuities do not typically pass down any remaining funds to beneficiaries after the holder’s death. However, it is possible to balance security and flexibility by partially combining annuities with pension drawdown.

According to the analysis, a 66-year-old with a £100,000 pension pot can now purchase

an annuity with an annual income of £6,790. This represents an increase of £842 compared to the previous year. The surge in interest rates has resulted in the highest demand for annuities in years.

Importance of shopping around

Data further emphasises the importance of shopping around. It has revealed that the difference between the best and worst annuity rates available can be substantial. For a 66-year-old with a £100,000 pension pot, rates can differ by as much as 9.1%, translating to a potential annual income difference of £622 or a staggering £14,928 over the average retirement period.

The recent focus on annuities can be attributed to rising interest rates, which have a tangible impact on the income of those who have already purchased an annuity. However, it is essential to understand that while record rates are advantageous, they should be considered part of a broader discussion.

Looking for a guaranteed income throughout your lifetime?

Annuities continue to be attractive for individuals seeking peace of mind and the assurance of a guaranteed income throughout their lifetime. If you are contemplating an annuity, speak to us and we will explain how to assess all your options. As the research suggests, shopping around is crucial in securing the best possible deal for your retirement income.

If you’d like to discuss your retirement income, please get in touch using the form below:

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Watch now: When can I retire?

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On 7th December we held our ‘Ask the Financial Adviser: When can I retire?’ webinar.

If you missed the webinar and would like to watch the recording, please fill out the form below to receive your link.

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Enhancing People’s Lives

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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.

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Income in Retirement

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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.

  • Longevity Risk – you live longer than anticipated, so you could run out of money.
  • Inflation Risk – your money does not stretch as far as it used to.
  • Market Volatility – the value of your investments and the income generated by them can fall as well as rise, meaning you have less in your pension fund when you retire.
  • Withdrawal Strategy / Pound Cost Averaging – if withdrawals are made when markets are falling or low, more of the assets need to be sold to cover the withdrawal. This impacts the ability of the remaining portfolio to generate returns for the future.
  • Healthcare Costs – as people age, they are more likely to need healthcare, which can be costly.
  • Government Policy – changes in government policy can affect the spending power of your savings, the attractiveness of pension products, among other things.
  • Personal Circumstances – risks specific to your individual circumstances.

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:

  • an initial portfolio value of £1 million
  • a withdrawal of 5% of the original invested amount (i.e. £50,000) a year
  • the amount withdrawn increases by inflation each year (0% in Figure 4, and 2% in Figure 5), and
  • the balance remaining invested in stock/bond markets to generate capital growth and income (i.e. a total return), growing at a steady rate of 4% a year.

No Inflation: How long will a client’s portfolio last?

Withdrawing 5%, inflation 0%, investment growth 4%

2% Inflation: How long will a client’s portfolio last?

Withdrawing 5%, inflation 2%, investment growth 4%

Sustainable Withdrawal Rates

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).

Increased Withdrawal Rate: How long will a client’s portfolio last?

Withdrawing 8%, inflation 2%, investment growth 4%

Find out more

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.

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Invest for income

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What is Investing for Income?

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

  • a fixed amount – a set monetary amount that doesn’t change over time, or
  • variable – for example, taking the ‘natural income’ generated by the investments depending on your requirements. Depending on the amount you withdraw and market conditions, the original capital sum may be left untouched or reduced over time.

Ellis Bates Financial Advisers Income Portfolios

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.

Our Investment Services

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.

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