Harvest Time for a few?02 September 2019
September 2019 begins, and many of you may know that I achieve a lot of writing especially when I am away. Sure, I could be doing other things, but I find that when my world slows from its usual productive pace, the mind is set free to wander a little as to where you are and where you want to be, not only for me personally, but also for our clients and enquirers.
As I tap away at my iPad, I am reminded that autumn and winter are on their way, both literally and, for some, metaphorically. Our recent Blog (01 August 2019) on being inspired to retire early is, we believe, a good example. The evolving and varying positions taken in the next few weeks over Brexit will also focus and concern many minds
How many analogies can we come up with for comparing autumn with the end of a working career? Many, I am sure you can think of some, and one that springs to mind is 'You can only harvest what has been previously sown'. From a financial planning perspective, the point is where are you going to get your regular income and capital funds from when your 'harvest time', ie: retirement comes?
The value of funds available to many may not seem as high as hoped for and this can in itself be demotivating. Indeed, we are advocates (where checked and considered) of maintaining a range of separate pension and investment plans to avoid the potential risk of 'all eggs in one basket'. Usually, it's the range of sources that brings the overall retirement 'harvest' together, possibly in combination with a spouse or partner.
This might include:
- Auto-enrolment / workplace pension savings: auto-enrolment has been introduced to most companies over the last few years. It is worth noting that some schemes operate minimum contributions, so capital values may not be high
- Old employer pension schemes: many people have more than one employer over their working lives. If you think you have an old scheme but have lost it, there is a free pension tracing service available here: https://www.gov.uk/find-pension-contact-details
- Personal Pensions, Stakeholder Pensions, SIPPs, and alike
- State Pension: you can check your forecast here: https://www.gov.uk/check-state-pension
- Part-time / consultancy work (if you plan to phase your way into retirement)
- Your own accumulated savings (we would normally advocate maintaining 3-6 months' income as ready capital, even in retirement)
- Redundancy payment (The first £30,000 is usually paid tax free)
- Inheritance (although long term care costs are seeing this capital reduce for some and you also need to take into account inheritance tax charges. In our experience, not normally a reliable source of future funds)
Some of these sources are likely to be more certain than others, and you may want to aim to enter retirement mortgage and debt free to ensure borrowing costs are nothing to be scared of. This is something we would certainly advocate.
Your overall attitude to investment risk may also change as you move from work to retirement and it's important that you review this. Our Investment Risk Scale may help with your considerations: http://www.chaptersfinancial.com/attitude-to-investment-risk
Our experience shows that it is usually the cumulative effect of these various sources of funds, including pension tax free cash, which creates the overall income level that can be used for the future.
It is important to check the overall picture early to know where the strands of funds will come from and how they can be used to provide for you. Our Retirement Options Schedule may help in this regard, and this can be found on our website here: https://chapterfinancial.com/RetirementOptions.pdf
Finally, make a Will and make sure it remains up to date. If your careful plans end sooner than you had anticipated, I am sure you would want your estate to also be planned carefully, avoiding inheritance tax where possible.
As with all of our topical commentary, no individual advice is provided during this blog. The team at Chapters Financial will be happy to help you with your own enquiry about how you plan for your future years, their costs, and your needs.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.