Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Friday 18th October 2019

When do you want to retire? Are you dreaming of giving up work before you start collecting your State Pension? With news that the State Pension age is rising and suggestions the government needs to raise it quicker, it’s a question more workers may be thinking about.

With 15th September marking Pension Awareness Day, now is the perfect time to consider whether your pension contributions are aligned with your plans. The sooner you start planning retirement, the more likely you’ll be able to make dreams a reality.

Changes to the State Pension age

Recently, the State Pension age for men and women equalised at the age of 65. However, further rises are planned and the State Pension age remains under review. By 2028, the State Pension age will be 67 and it’s likely to rise beyond this. It’s important to understand when you’ll receive the State Pension and to keep track of how legislative change will have an impact. You can check your State Pension here.

Whilst there are already steps in place to increase the State Pension, you may have seen recent news suggesting that it needs to increase at a much faster pace.

According to think tank the Centre for Social Justice the State Pension age should reach 70 by 2028 and 75 by 2035. The organisation argues getting more people in their 50s and 60s to continue working could boost the economy by £182 billion. It also notes the cost of providing the State Pension, which accounted for 42% of all welfare spending last year, a bill that is rising. Over the last 30 years, the cost of the State Pension has increased by over £75 billion, reaching £92 billion.

If you’d hoped to retire sooner, the State Pension age increasing could derail plans. The Centre for Social Justice paper is simply a suggestion, but you may not want to work up to the point the State Pension age is currently set.

3 steps to calculating if you can retire before receiving the State Pension

So, how can you retire before State Pension age? It’s a goal that requires careful financial planning. Fortunately, if this is your target, Pension Freedoms mean than you’re likely to have more options that you would in the past. Most people are now able to access their pensions from the age of 55, well before they can expect to start receiving an income from the State Pension.

However, simply being able to access pensions earlier in life doesn’t mean you can afford to retire sooner. Your pension provisions are likely to need to provide an income for the rest of your life. Making withdrawals sooner could leave you in a financially vulnerable position in your latter years.

You’ll need to take three essential steps to begin understanding if it’s possible to retire on your current provisions before you’ll receive the State Pension and how to make up a potential shortfall.

1. Set out your goals

Calculating if you can afford to retire before the State Pension age means you first need to set out what you hope to achieve. There are two key questions here; when do you want to retire? What will your lifestyle and spending look like in retirement? Understanding how much income you’ll need annually and your life expectancy are crucial to assessing how your savings stack up.

2. Understand your current pension savings

With an idea of how much you’ll need to retire sooner, you’ll need to look at how much you already have in your pensions. Remember to assess all the pensions you hold and factor in likely investment returns between now and your intended retirement date. With these figures, you’ll be able to see the level of income your pension will provide if you retire at different points.

3. Assess how other assets may be used

Pensions are often the key to creating an income in retirement, but they’re not the only option. You may have other assets that can be used to fund retirement, such as savings, investments or property. How could these be used to supplement pensions? Knowing you have other assets to fall back on can give you the confidence needed to move ahead with plans. You also need to ask whether you’d be comfortable using other assets for retirement income. Perhaps you’d hoped to leave property as an inheritance or savings to pay for potential care costs.

Identifying a shortfall

As you assess your pension savings, you may find that you’re in a better position than you thought. However, you could also find a gap between your ambitions and savings. If this is the case, identifying the shortfall is the first step to creating a financial plan that combines your aspirations and financial situation. This is where financial planning can help you understand what steps may help.

  • Could you work longer than initially planned and still retire before receiving the State Pension?
  • Would a phased approach to retirement appeal to you?
  • Could you reduce your monthly outgoings or cut back on big-ticket spending?

If you hope to retire before reaching State Pension age and would like to understand the impact this will have on your financial security, please get in touch.

Retirement is often a milestone that’s eagerly anticipated. Many of us think about handing our notice in for the last time, having more free time to do what we like and simply relaxing. However, the reality doesn’t always live up to expectations and many don’t want to ‘retire’ in the traditional sense.

When you think about retirement you might imagine travelling more, spending time with grandchildren or putting your feet up with a coffee and a good book. It’s not surprising it’s often viewed as something to look forward to. However, research suggests that the novelty can quickly wear off. Without work providing structure and a career path providing goals, some retirees find themselves facing an existential crisis just months into retirement.

Speaking to the BBC, Harvard Business School professor Teresa Amabile said: “People think of planning for retirement as a financial exercise, and that’s all. It also needs to be a psychological and relationship exercise as well.

“We need to think about who we will be – who we want to be when our formal career ends. The people in our study who do that, tend to have a smoother transition.”

One of the interesting parts of the research highlights just how much our careers define us. When asked to describe themselves, people often replied that they were a ‘retired librarian’ or ‘retired research chemist’. For many people, work plays a role in how we see ourselves and how fulfilling life is. As a result, when you leave that behind, you can feel at a loose end.

Creating a ‘retirement’ that suits you

Of course, just because you don’t want to embrace a traditional retirement, doesn’t mean you want to continue along the same career path either. Perhaps you want to have more free time on your hands, learn a new skill or hold a position that benefits your local community. Luckily, there are other ways of maintaining some of the structure, social benefits and other advantages of the working world you may enjoy whilst creating the work-life balance that you want.

The most common way of achieving this is through phased retirement, where you slowly cut back on the hours and responsibilities you’re committed to at work. This may mean working part-time or having greater flexibility where and when you work for example. But there are other routes there too, including these three:

1. Mentoring

During your working life, you’ll have gathered skills, knowledge and expertise that could be invaluable to a young professional starting their career. Taking a mentoring role, from helping those entering the workforce find the right positions for them, through to providing support to start-ups businesses, there are plenty of opportunities out there. Networking and mentoring communities are great places to start if this is something that appeals to you. Mentorsme is just one example of a platform that connects free and paid-for mentors with those seeking experience.

2. Volunteering

If you’re in a good financial position, you may want to dedicate some of your free time in retirement to volunteering. Whether you choose a charity that provides support at a local, national or international level, you can benefit from the feel-good factor of knowing you’ve given back. The great thing about volunteering is that roles are often flexible and there are so many opportunities out there for you to find the right position. Whether you want to volunteer occasionally during big events or on a regular basis, it can help give your life some of the structure it had when you were working.

3. Working for yourself

Have you always wanted to work for yourself? Retirement could be the perfect time to pursue that dream. Thanks to technology, it’s easier than ever before to reach an audience and turn entrepreneurship dreams into a reality. You could use your skills gained through work to freelance or you may have a business idea in the back of your mind. Working for yourself puts you in control of getting the work-life balance right. Plus, potential earnings can boost your pension and savings even further.

Incorporating your financial position

Whatever your reasons for maintaining some form of work structure, it’s important to consider your finances.

  • Do you have the financial security to give up work?
  • Would some additional income allow you to live the retirement lifestyle you’ve been looking forward to?
  • Will your decision impact your future financial security?

Money shouldn’t be the only focus when you’re making retirement decisions. However, you do need to keep in mind that your pension is likely to need to provide an income for the rest of your life. Choosing to leave work earlier than anticipated to pursue volunteering opportunities, for example, may mean your later life finances aren’t as expected. Alternatively, when assessing your financial provisions, you may find you’re in a better position than thought and choose to ‘retire’ sooner than anticipated.

Financial planning can help you bring together your financial provisions with your goals, giving you the confidence to retire in a way that suits you. If you’re planning your retirement now, whether traditional or not, please get in touch.

Are you expecting to receive an inheritance at some point in your life? Whilst many of us know loved ones hope to leave something behind for family, it seems that people are increasingly relying on an inheritance to achieve their aspirations.

According to a survey, one in seven young adults expects to inherit money before they are 35. With house prices rising, it’s not surprising that over a fifth hope to fund their first property purchase with it. However, expectations are often not aligned with reality. The typical age to receive an inheritance is between 55 and 64. Furthermore, rather than almost £130,000 young adults hope to receive, the median average handed down is just £11,000.

Further research conducted by SunLife highlights that an inheritance often isn’t life-changing. Less than half (46%) of people aged over 55 have received an inheritance. Whilst the average amount received was a significant £74,816, this still falls below the £184,484 people said they would need to feel comfortable for the rest of their lives.

Relying on inheritance: A risky decision

Whilst an inheritance might seem like it will solve financial worries and aspirations, it’s risky relying on inheritance alone.

Firstly, people are living longer and there’s no guarantee of when you’d receive an inheritance, even if a loved one intends to name you as a beneficiary. For many people, inheritance is likely to come too late to help them achieve milestones. You may not receive an inheritance until long after you’ve retired, for example.

Secondly, there’s no way to guarantee the amount you’ll receive either. Even if you’ve spoken to your loved one about how their estate will be distributed, circumstances can change. For instance, if your loved one requires care in their later years, the value of their assets may be significantly depleted.

If an inheritance is integral to your plans and financial future, it may be worthwhile reassessing the steps you’re taking now and how you’ll achieve your goals. Here are five steps to take to improve your financial security if this is the case.

1. Have an honest discussion with loved ones

Talking to loved ones about a potential inheritance can be challenging, but if it’s going to be crucial to your future, it’s an important one to have. Some people may not want to discuss what is written in their will, while others will be happy to, so keep this in mind. Sensitively asking what, if anything, you may receive can help you plan and build realistic expectations.

2. Assess your goals and how you might achieve them

When you think about how an inheritance will help, which goals come to mind? Perhaps it’s buying your first home, being able to retire earlier or something entirely different. Thinking about these without an inheritance in the equation can help you look for alternative solutions. If milestones or areas that are important to you are currently dependent on an inheritance, creating different options can give you greater confidence.

3. Take steps to build a financial safety net

Thinking that you’ll inherit a significant sum can mean you make more reckless financial decisions than you would if you didn’t believe you had an inheritance to fall back on. Don’t neglect building a financial safety net now even if you believe an inheritance will take care of you in the future. As a general rule of thumb, you should have a minimum of three to six months outgoings in an easily accessible account.

4. Focus on how an inheritance can enhance your lifestyle

Rather than looking at where an inheritance is essential for your lifestyle and goals, look at how it can enhance it. For example, if you hope to retire before State Pension age, you should start taking the steps to achieve this now. Then an inheritance may mean you can retire a few years earlier than anticipated or afford you a more comfortable lifestyle when you do.

5. Speak to a financial adviser

If goals and your financial future seem daunting, a financial adviser may be able to help you create a financial plan. Using cashflow planning tools, for example, you’ll be able to see how your current financial situation will affect your plans in the short, medium and long term, whether you receive an inheritance or not. As a result, it can help you build a blueprint to secure the future you want. If you’d like to discuss your finances and potential inheritance, please get in touch.

Please note: The Financial Conduct Authority does not regulate estate planning.

When you think of financial risk, it’s probably potential investment losses that come to mind. But not taking enough risk with your wealth can be just as damaging financially.

News that UBS, the world’s largest wealth manager, will introduce a penalty for clients that hold a large portion of their assets in cash accounts gives the perfect opportunity to look at whether you’re taking enough investment risk.

From November, wealthy clients of UBS will face an additional annual fee of 0.6% on cash savings of more than €500,000 (£458,000). The penalty rises to 0.75% for those with savings that exceed two million Swiss francs (£1.7 million). The minimum fee is €3,000 (£2,746) a year. A UBS client holding two million Swiss francs in cash would face an additional annual charge of 15,000 francs (£12,624).

The negative interest rates set by the Swiss National Bank and the European Central Bank are behind the decision for the new penalty. Negative interest rates mean cash deposits incur a charge for using an account, rather than receiving interest.

Whilst the UK does not have negative interest rates, they have remained low since the 2008 financial crisis. The Bank of England base rate is just 0.75% and has been below the 1% mark for the last decade. As a result, it’s likely your cash savings are generating lower returns than they may have in the past.

Why cash isn’t always king

You’ve probably heard the phrase ‘cash is king’ but this isn’t always the case.

Cash is often viewed as a safe haven for your money. After all, it won’t be exposed to investment risk and under the Financial Services Compensation Scheme (FSCS) up to £85,000 is protected per person per authorised bank or building society. If you’re worried about the value of your assets falling, cash can seem like the best option.

However, that’s a view that fails to consider one important factor: inflation.

The rising cost of living means that your cash effectively falls in value in real terms over time. In the past, you may have been able to use cash accounts to keep pace with inflation. But low-interest rates mean that’s now unlikely. Over time, this means the value of your savings is slowly eroded.

At first glance, the annual inflation rate can seem like it will have little impact on your savings. But, over the long term, the effect can be significant. Let’s say you had a lump sum of £10,000 in 1988. To achieve the same spending power 30 years later you’d need £26,122. If you’d simply left that initial lump sum in a cash account generating little interest, it’ll be worth less today.

Of course, that’s not to say there isn’t a place for cash accounts in your financial plan. For an easily accessible emergency fund, a cash account may be the best home for your savings, for example. Yet, in some cases, taking the right level of investment risk is essential for not only growing but maintaining wealth.

How much investment risk should you be taking?

Whilst holding your wealth in cash is potentially harming the outlook of your financial plan, you may be wondering how much investment risk you should be taking.

Unfortunately, it’s not a question we can answer here. It’s a decision that’s personal and should be made taking your circumstances and aspirations into account. For some people, investing in relatively low-risk investments that aim to match inflation will be the right path. For others, taking greater risk will be considered worth it when the potential for higher returns is considered.

When deciding how much risk your investment portfolio should take, areas to think about include:

  • The reason you’re investing
  • How long you’ll remain invested for
  • Other assets you have and the risk profile of these
  • Your capacity for loss
  • Where investing fits into your wider financial plan
  • Your overall attitude to risk

Understanding the level of investment risk that’s right for you and the portion of your wealth that should be invested can be challenging. This is where we, as financial planners, can help you. We aim to work with you to create a financial plan that puts your short, medium and long-term goals at the centre of decisions. If you’re unsure if you’re taking enough, or indeed too much, risk financially, please get in touch.

Since 2015, retirees have had far more control over their pensions. Rather than purchasing an Annuity, more are choosing to leave their pension invested. This has benefits and can help you build a flexible income, but there are things to keep in mind too.

Figures from HM Revenue and Customs (HMRC) revealed that in the second quarter of 2019, retirees withdrew £2.75 billion from their pension flexibly. It represents the greatest amount withdrawn in a single quarter since Pension Freedoms were introduced. In total, £28 billion has been withdrawn flexibly over the last four years.

From the age of 55, you’re now able to start accessing your pension whether you’re ready to retire or not. One of the options open to you is Flexi-Access Drawdown. This is a pension product that allows you to make withdrawals that suit you, altering the amount and choosing the time. The capital that remains in the pension is typically invested. As a result, more retirees are now having to consider how to manage investments.

The pros and cons of Flexi-Access Drawdown

Before we look at managing investments in retirement, it’s important to recognise that Flexi-Access Drawdown isn’t the right option for everyone. As with all financial decisions, there are pros and cons to weigh up, as well as alternatives to explore.


  • You’re in control of the income you take and when you make a withdrawal
  • As the money remains invested, there is potential for the value of your pension to increase
  • You can choose the level of investment risk you take with your retirement savings
  • It can provide you with a tax-efficient way to pass on wealth if your estate may be liable for Inheritance Tax


  • You will need to take responsibility for ensuring withdrawals are sustainable
  • Investment can decrease in value and short-term volatility may have an impact
  • You will need to consider life expectancy when calculating how much can be withdrawn, as well as considering what will happen should you live longer than average
  • You will need to understand how withdrawal levels and when you make them will affect your tax position

If you have any questions about the pros and cons of Flexi-Access Drawdown, please contact us.

Flexi-Access Drawdown is still relatively new but analysis looking at the last four years suggests many retirees will have profited.

According to Aegon, an individual with a £400,000 pension taking a £20,000 annual income from day one of the Pension Freedoms would have seen their pot grow by £62,000 after four years in the ABI Global Equities sector. This is despite the impact of £80,000 of income payments. The same retiree invested in the UK Equity Income, Mixed Investment 20%-60% Shares sector average and Global Fixed Interest, would have seen some erosion to the capital. However, crucially, such erosion was less than the total income taken in all three cases.

The analysis illustrates how leaving a pension invested can deliver returns for retirees, but it should be noted that this will depend on individual circumstances and the assets the pension is invested in.

So, if you do decide to go ahead with Flexi-Access Drawdown, what should you keep in mind?

1. Risk profile

As your pension remains invested, it’s important to consider the amount of risk you’re taking. Traditionally, it was common to decrease the level of risk as your approached retirement age, when it was then withdrawn. However, longer retirement and changing lifestyles mean this isn’t always suitable for those considering how to access their pension today.

As with all investment decisions, the level of risk you take with your pension should consider a range of factors. This may include your overall attitude to risk, other assets you hold, how long you expect to be accessing the pension for and when you’ll make withdrawals. There’s no single solution to the level of investment risk you should take when retired, it’s one that should consider your personal circumstances.

2. Impact of volatility

Investments will experience volatility. But how should you respond to this when you’re withdrawing an income from it?

If you choose to, you can continue taking an income as you planned, despite volatility. However, this can mean your savings are depleted far more quickly than you planned and place future financial security at risk. Should investment values fall, for example, you’ll need to sell more units to achieve the same level of income. In turn, this can mean investment returns don’t meet expectations.

Adjusting the income taken in line with investment performance can help you stay on track and ensure your pension will continue to support you throughout retirement.

3. Financial safety net

Having a financial safety net is often cited as important during your working life and it’s no different when you retire. How will you cover unexpected bills or expenses? If investment performance falls, will you be able to reduce the income taken from a pension and still maintain your lifestyle?

If your retirement income is invested, it’s important to understand the financial safety net you have in place. It can give you peace of mind and the confidence to fully enjoy your retirement. A financial safety net is likely made up of different assets, but may include an emergency savings fund, the State Pension or a guaranteed income from a Defined Benefit pension.

4. Life expectancy

Using Flexi-Access Drawdown means you’re responsible for making sure your pension lasts for the rest of your life. That can be a daunting prospect and your life expectancy should be directly linked to the level of income you take. There are two important things to keep in mind.

First, most people at retirement age underestimate how long they’ll live for. According to a report from the Institute of Fiscal Studies, those in their 50s and 60s underestimate their chances of reaching age 75 by around 20% and their chance of reaching 85 by 5-10%. It’s a mistake that could mean you run out of money during your later years.

Second, whilst looking at average life expectancy can be useful, you should keep in mind many people exceed this. Thousands of people celebrate their 100th birthday every year in the UK and it’s a trend that’s on the rise. Your financial plan should consider what will happen if you lived longer than average, as well as how to pass on wealth that remains.

If you want to discuss how Flexi-Access Drawdown may suit your retirement plans, please get in touch.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The value of your investment can go up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

More people are paying into a pension than ever before. Yet, millions are still worried they’ll never be able to retire. If you have concerns about the retirement lifestyle you will be able to afford, there are often steps you can take to improve this.

First, the good news: the number of people saving enough for retirement has hit its highest ever level, according to Scottish Widows. Almost three in five Brits are deemed to be putting enough aside for retirement, calculated at 12% of an individual’s income. However, a worrying number expect they’ll never be able to afford to give up work. Around a fifth of people believe they won’t be financially secure enough to retire, equating to eight million individuals.

With fewer Defined Benefit (DB) schemes available, which offer a guaranteed income for life, individuals need to take more responsibility for their retirement finances. But the research indicates a large portion of the population don’t have confidence in the steps they’re taking.

Peter Glancy, Head of Policy at Scottish Widows, said: “While the past 15 years alone have proved that things have been changed for the better, auto-enrolment alone won’t avert a pension crisis in the UK. Government and industry need to take the next step together and also stop pretending the long-term savings challenge can be solved in isolation.”

6 things to do if you’re worried about pension savings

In recent years, the responsibility for creating a retirement income has shifted to individuals. The number of Defined Benefit (DB) pensions schemes has been falling. Also, Pension Freedoms mean retirees are now often responsible for how and when they access pension savings. As a result, it’s natural to have some concerns about how your retirement provisions will provide for you.

If you’re worried you won’t be able to afford retirement or are unsure of the lifestyle you’ll be able to enjoy, these six steps may help.

1. Assess your current savings

Whilst the Sottish Widows research highlights millions are worried about retirement, it doesn’t state how much these people have put away. It may be that some are in a better position than they believe, particularly when looking at the long term.

The first thing to do is look at the amount you have already saved. The majority of workers will have several pensions due to switching jobs; getting a current value for them all is important. This will give you a figure to assess whether or not you’re on track. Remember, most pensions are invested, and the value will hopefully grow between now and when you hope to retire. Providers will give you a projected value at traditional retirement age, however, this cannot be guaranteed.

2. Check contributions

Next, how much are you contributing to your pension? If you’ve been auto-enrolled into a pension by your employer, the minimum you contribute is currently 5% of qualifying earnings. However, you can choose to increase this. The end goal for pension savings can seem daunting, but it’s worth remembering your employer will also be contributing at least 3% and you’ll benefit from tax relief. These two incentives can significantly boost the amount you’re putting away.

With a baseline for how much you’re already putting away, you may want to consider increasing contributions. Even a small rise in how much you put away each month can have a big impact. When saving for life after work, a pension is often the most efficient way to save. Some employers will also increase their contributions in line with yours.

3. Don’t forget the State Pension

It’s not just your Personal and Workplace Pensions that will provide an income in retirement. For many, the State Pension will be the foundation. Once you’ve factored in how much you can expect to receive from the State Pension, the amount you need to take responsibility for can seem far less challenging.

The State Pension alone won’t usually provide you with enough to secure the retirement lifestyle you want. But it does provide a level of security and maybe enough to cover essential outgoings. How much you’ll receive will depend on your National Insurance record. To qualify for the full amount, paying out £8,767.20 annually in 2019/20, you’d need to have 35 qualifying years on your National Insurance record. You can check how much your State Pension is likely to be here.

4. Calculate other sources of income

Whilst pensions are the most common way to create an income in retirement, they’re not the only option. Other assets you’ve built up throughout your working life can also be used and may be important to your personal financial plan. Yet, when initially looking at how affordable retirement is, you may have missed these out.

Among the assets to consider are savings, investments and property. How these assets can be used in retirement will depend on your situation and goals, but it’s important they’re not overlooked. Even if you don’t intend to use them in retirement, knowing you have assets to fall back on if necessary, can give you the confidence needed to approach this important milestone.

5. Consider the costs of retirement

If you think you can’t afford to retire, what are you basing this on? If you’re looking at your current expenditure, you may be overestimating how much you need. Most people find their necessary income falls in retirement as some significant costs decrease. You may, for instance, no longer have a mortgage to pay or save each month on travel costs once you’re not commuting.

The cost of retirement is individual and is linked to your plans. Taking some time to figure out how much you need can help you identify if there is a shortfall or where adjustments can be made if needed. According to Which? research, the average retired household spends around £27,000 a year. This is made up of basic areas of expenditure (£17,800 annually) and some luxuries.

6. Speak to a financial adviser

We often find that people are in a better position than they think when they consider the above five factors. We’re here to help you pull together the different sources of income that can be used in retirement and understand how they’ll provide for you. Using cashflow modelling, we’ll be able to demonstrate how your current provisions will last throughout retirement and how changes to your saving habits will have an effect in the short, medium and long term. If you’re worried about financial security in retirement, please get in touch.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulations which are subject to change in the future.

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

Property is increasingly being seen as an asset that’s vital for funding retirement. It’s no surprise, after all, our homes are often one of the largest assets we have, but what are your options and the drawbacks of doing this?

The value of property has grown enormously over the last few decades. If you’re approaching retirement now, you’ve likely benefited from this at some point. According to figures from Nationwide, the average home cost £59,534 at the beginning of 1989. Over a 30-year period, it increased to £212,694. As a result, property has become an integral asset to consider when planning for retirement or thinking about how you’ll pass your estate on to loved ones.

Property and retirement: A growing trend

Some retirees are already exploring how they can use property wealth to enhance their lifestyle and supplement other financial provisions. Research suggests it’s a trend that’s set to continue. According to analysis by Canada Life younger generations are three times more likely to plan to use property wealth to fund retirement:

  • Almost one in ten (9%) people aged between 16 and 54 expect the wealth stored in their homes to be their main source of income in retirement
  • This compared to just 3% of those aged over 55

Alice Watson, Head of Marketing and Communications at Canada Life Home Finance, said: “It is good the younger generation recognises that they can unlock wealth from their property in retirement. This openness is likely driven by the reality that many under 50s will receive less generous pensions under the Defined Contribution scheme, compared to the majority of the older generation on the Defined Benefit plan.

“Notably, the research also illustrates the evolving profile of retirement income, and lends further weight to the argument that Equity Release is moving into mainstream financial planning.”

The findings suggest the majority of over 55s are confident in their financial security. Half believe their State or Workplace Pension will provide sufficient income, whilst one in five are relying on savings. However, with 21% underestimating how long they’ll live for, more could be reliant on property wealth than expected in the future.

What are your options?

With a significant portion of your wealth likely locked in property, it’s natural to wonder what you can do to access it should you need to.

One of the most obvious answers here is to downsize. Selling your home to purchase a cheaper property to spend retirement in can free up some of the investment you’ve made in property. This used to be the traditional route retirees went down. But what if you can’t or simply don’t want to move? Or what if downsizing wouldn’t release as much capital as you need?

Equity Release is an option that more retirees are choosing. There are several different types of Equity Release products, but they typically allow you to take either a lump sum or several smaller sums though a loan secured against your property which you pay interest on. This money is then repaid when you die or move into long-term care, as a result, you don’t usually make payments to reduce the loan during your lifetime, though some products allow you to pay off the interest.

Equity Release can seem like a fantastic way to fund retirement, but there are some crucial things to consider; it isn’t the right option for everyone.

  1. As you don’t usually pay the interest, the amount owed can rise rapidly
  2. Accessing the equity may mean you’re liable for more tax and affect means-tested benefits
  3. You may not be able to move in the future or face a high cost for doing so
  4. Equity Release will reduce the inheritance you leave behind for loved ones
  5. You will not be able to take out other loans that use property as security

Before you look at Equity Release products it’s important that you explore the alternatives to ensure it’s the right route for you. There may be different options that are better suited to your circumstances and goals.

Building a retirement income that suits you

Whilst property wealth is set to play a growing role in funding retirement, it’s important that other sources aren’t neglected. Retirement income is typically made up of multiple sources and may include:

  • State Pension
  • Workplace and/or Personal Pensions
  • Investments
  • Savings
  • Property

Choosing property over contributing to a pension can be tempting if retirement still seems far away, especially when you factor in property growth over the last 30 years. However, once you consider tax relief, employer contributions and investment returns, as well as tax efficiency, pensions should still play an important role in holistic retirement planning.

If you’re starting to think about retirement, whether the milestone is close or you want to understand how your current contributions will add up, we’re here to help. We’ll work with you to help you understand the different income streams that could provide a comfortable, fulfilling retirement that matches your aspirations.

When you’re investing your money through a fund, there are two main strategies: passive and active. The debate around which is the most effective way to invest your money has been raging for years. So, which should you opt for?

As with all investment decisions, it will depend on your goals and personal attitude to investing. However, it’s important to understand the difference between the two options when you’re making investment decisions. Both terms refer to how an investment fund is managed. There are more active funds available to choose from, but passive alternatives have been increasing in the last few years.

Actively managed investment funds

Actively managed funds are led by either a professional fund manager or investment research team. They actively make investment decisions on your behalf, such as when to buy into a specific company or sell certain types of assets. Those running the fund will conduct extensive research to inform their decision-making.

Different funds will have varying investment principles and focus, which you should read about before investing in an actively managed fund. However, they all aim to deliver higher returns than the market. Of course, this can’t be guaranteed, and the returns delivered will depend on those running it to make the right call.

Passive investment funds

Passive management of a fund, on the other hand, simply tracks the market. Rather than a team of people making decisions, a computer essentially runs a passive investment fund. The fund will hold all or a significant portion of assets of a particular market. As a result, the returns delivered should reflect how the overall market has performed.

Comparing the two options

When deciding between the two options, there are a few key comparisons to make that can help you make the right choice.

  • Fees: First up, what fees are you likely to pay for a passively or actively managed fund? As an active fund requires people to carry out a lot of hefty research, they naturally cost more to run. As a result, expect actively managed fund options to cost you more in term of fees. In some cases, this may be worthwhile, but it’s something you should factor into target returns.
  • Potential returns: What is your target return from your investment? As actively managed funds aim to beat the market, there is the potential to make a greater profit. However, relatively few managers can consistently beat the market. So, if this is what attracts you to an active investment strategy, it’s important to do your research. Whether you choose passive or active funds, returns can’t be guaranteed.
  • Historic performance: Whilst historic performance isn’t a reliable indicator for future performance, it can be a useful metric when comparing different options. Looking at historic performance can help you see if the investment strategies align with your personal outlook. For example, would you prefer relatively stable, but lower returns over potentially higher returns with increased volatility?
  • Responsiveness: Investment markets are affected by a huge range of issues, from geopolitical negotiations to consumer demand. A passive portfolio doesn’t react to the news to change how you’re invested. In contrast, an actively managed portfolio aims to do so. This hopefully allows the team running it to seek opportunities and avoid risk, though this relies on them making the right decision.
  • Area of interest: Are you thinking of investing in a particular industry? This is an area where expert insight can add value. However, for most investors spreading investments across multiple sectors, geographic markets and risk is an approach that suits their goals and financial position when looking at an investment portfolio as a whole.

Which option is right for you?

There’s no right or wrong answer when asking which is better: passive or active investing? It comes down to your own financial situation, goals and attitude. Much like the rest of the investing decisions you make, it’s one that should consider your wider financial situation too.

For some, the potential to achieve higher returns will mean that the higher fees associated with actively managed funds will be worth it. For others, a passive fund will be more attractive. If you want to review your current investment portfolio or start investing, please contact us.

Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

What’s on your bucket list? Whether incredibly exciting experiences, exotic travel destinations or something entirely different features on your list, it’s likely finances will play some role in how achievable they are. Could your savings be used to tick a few of your aspirations off?

You may have been saving with specific goals in mind or simply putting money to one side for the future. However, dipping into savings can be something people find difficult. To have built up a healthy savings fund you’ve likely established good money habits and accessing savings can go against this. However, it may mean you miss out on opportunities to achieve aspirations, even if you’re in a financial position that allows for it.

As a result, it’s important to understand your savings and how dipping into them will affect your plans, giving you the confidence to make decisions.

If you have big plans ahead, from helping younger generations get on to the property ladder to a once in a lifetime trip, there are a few things to consider. Your savings are likely to be spread across multiple products, how do you know where you should take the money from and when should you do it? Among the areas to consider are:

  • Accessibility: When looking at various savings, the first step should be to see how accessible they are. Are any of them fixed term accounts? Or are some of them invested? If you’re planning ahead for a few years’ time, accessibility is less likely to be an issue, but if you want the money soon, it may limit your options. Be sure to check that you won’t lose any of your savings, interest or returns by taking money out. Some accounts may lower interest rates, for example, if you make a withdrawal before a set date.
  • Tax efficiency: Would accessing your savings affect your tax position? There are some instances where taking a lump sum from savings may mean an unexpected tax bill. Let’s say you decide to use some of your pension after the age of 55 savings to kick-start retirement; the first 25% can usually be withdrawn tax-free, but, take out more than this and it may be considered income for tax purposes. If you sell stocks and shares, you may be liable for Capital Gains Tax too. Looking at the tax efficiency of different options allows you to maximise your savings.
  • Allowances: As you’ve been saving for the future, you may have made use of allowances. Your ISA (Individual Savings Account) allowance means you can save £20,000 each tax-year tax-efficiently. If you take money out of an ISA, you may not be able to return it without using up the current year’s allowance depending on the provider, which may limit you. In some cases, allowances will have little impact on your decisions, but in others they are important. This will depend on your personal circumstances and plans.
  • Potential for future growth: Which of your saving pots has the biggest potential for growth in the future? Accessing savings that are invested over a cash account with a low-interest rate may not be in your best interests financially when you look at the long term, for example.

The impact on your long-term financial security

Of course, it’s important to consider what impact using savings now will have on your long-term financial security. If you’re worried about how taking money out of savings could affect future plans, this is an area financial planning can help with.

Often people find they’re in a better financial position to start accessing their savings than they first think, but it’s normal to have some concerns. Cashflow modelling can help you visualise the short, medium and long-term impact of using your savings. It can also model how taking savings out of different saving products will have an effect, allowing you to choose the right option for you.

It’s also an opportunity to weigh up how your financial security will be affected. Would using a portion of savings mean your emergency fund is depleted, for example? Understanding the long-term implications gives you the tools needed to decide how much and when you should make a withdrawal from your savings. Taking the time to consider the long-term impact of your decision means you can proceed with confidence and really enjoy spending the money on turning aspirations into a reality.

If you’re thinking of accessing some of your hard-earned savings to work through your bucket list and have concerns, please contact us. Our goal is to work with you to help you get the most out of your money by creating a financial plan that reflects aspirations and boosts confidence.

Planning your retirement can be a challenge. There are multiple areas to think about and you may not have a clear idea of what you want it to look like. However, whilst putting off planning until the retirement date arrives might seem attractive, it can mean missing out. Taking a proactive approach in the run-up to retirement can provide focus.

If you’re at a loss about where to start with retirement planning, bringing the spotlight back to you should be your first step. There’s no single type of retirement that suits everyone. A key part of your planning should be about understanding what your ideal retirement looks like and building a fulfilling lifestyle once you give up work. Over the last few decades, work has probably played a significant role in your life and it can be daunting to step away from that and embrace the freedom retirement offers.

The five questions below can help you start to think about the type of retirement that you’ll want to look forward to.

1. When do you want to retire?

The first thing to set out is when you want to retire. For some, retiring as soon as possible is the dream, but others will want to work well past the traditional retirement age. You don’t have to set a date in stone if you’re unsure. However, having a rough idea of when you’d like to embark on retirement means you can make informed decisions. As well as your personal outlook, your job and the flexibility it affords will play a role too. If you were to carry on working for another ten years, would adjustments need to be made, for example?

Remember, the State Pension age is now gradually rising for both men and women. If you’ll rely on the State Pension to supplement other sources of income, be sure to check when you can start claiming it.

2. Would you like to take a phased approach to retirement?

Does the thought of giving up work completely worry you? You’re not alone, more retirees are choosing a phased approach. This may mean cutting down your hours at an existing position or looking for a new job that will provide you with more flexibility. Phased retirement may be the right choice for you if you don’t feel quite ready to jump into retirement. Work offers numerous benefits, such as social life and keeping your mind active, that you may still want to hold on to whilst enjoying some freedom. Phased retirement can also enhance your income and help preserve pensions and other provisions you may have made.

3. Do you plan to make any one-off purchases to kick-start retirement?

When we first start to think about retiring, it’s often those big one-off plans that our attention is drawn to. Do you hope to begin retirement with a once in a lifetime holiday? Or, perhaps you’ve been thinking about renovating your home once you have more time on your hands? This is a time to celebrate the next chapter of your life and you may want to mark the occasion with a grand gesture, now is the perfect time to think about what you’d like.

4. How will you fill your time day-to-day?

Whilst the above point is often the focus, the day-to-day is just as important too. What’s important to your life now or driving your decision to retire? It may be a desire to travel the world, spend more time with loved ones or focus on a hobby that you’ve not been able to dedicate as much time as you’d like. Without work, how will you spend your time? Whilst you might simply plan to spend more time at the golf range or relaxing, without plans it can become dull quickly. Thinking of several hobbies, aspirations and passions you can pursue in retirement can create a lifestyle that’s enjoyable and fulfilling.

5. Do you want to move or stay where you are?

Finally, it’s time to think about where you’d like to spend retirement. You may be comfortable in your own home. If this is the case now is an excellent time to think about whether any adaptions would be needed to ensure it’s suitable throughout retirement. Alternatively, you may have plans to downsize, move closer to family or even take the plunge to live abroad. Whatever your plans, you should consider how they’ll affect the lifestyle that you want to achieve.

Taking a look at your retirement finances

Setting out the retirement lifestyle you want is important. However, so is ensuring it’s realistic and in line with your financial provisions. Taking the time to review your retirement finances can help you see where adjustments may need to be made or where you can think even bigger.

When people start looking at all the sources of income open to them in retirement, such as pensions and savings, many find they’re in a better position than they first suspected. As a result, they may choose to expand plans, help family or simply proceed with confidence about their financial situation. Of course, some planning for retirement may find there’s a shortfall. If this is the case, don’t panic. Realising there’s a gap in your finances before reaching retirement means you’re in a position to make changes where necessary or look at alternative sources of income.

Calculating income in retirement and understanding a sustainable level to access assets can be complex. This is an area we’re happy to help you with. We work with a range of clients planning for retirement to help them understand what they want to achieve and how assets will allow them to do so.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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