Your Retirement Story

Your retirement will hopefully be a long one and represent a significant proportion of your life.

But, retirement is a story and, like most good stories, it has a beginning, middle and end. Inevitably, over what can be decades, your lifestyle, level of activity and needs will undergo some profound changes.

It’s important to recognise this because it has big implications for the way in which you make plans for your retirement years. Put simply, most people will want to spend more in the earlier years of their retirement and less as they grow older.

There are many ways in which income needs are reduced as retirement progresses.

Often, people will move into smaller accommodation when they retire. Their children have left home and they don’t want the hassle of the upkeep of a larger property. This reduces outgoings and can often release capital that can used for their retirement planning.

People tend to switch to smaller cars, which are less expensive to run and they probably only feel the need for one family car. Children are usually independent by now and don’t need to draw on the Bank of Mum and Dad. Smaller families and increasing age are likely to lead to lower grocery bills. As you grow older, you are less interested in fashion and spend less on clothing and you go on fewer holidays. On the other hand, many things, from prescription charges to public transport and museum entry, become free or discounted.

Early years of retirement

In the early years of retirement, however, it is likely you’ll want to enjoy life to the full and do those things you didn’t have the time or money to do when you were working. A flexible drawdown pension allows you to take more money in those early years and taper off your requirements as time goes on. Not only that, but once many people recognise that they will need less income towards the end of this time, they realise that they may be able to retire earlier than they had anticipated.

Our clients Paul and Mary Rogers (names changed for the purpose of article) retired when they both reached the age of 63 and between them had built up retirement provisions worth about £500,000 in total. This was held in both Pension and ISA.

For the earlier years of their retirement they calculated that they would need an annual £40,000 net of tax to allow them to fulfil some ambitions, taking about three holidays a year, including a cruise, and to enjoy going out to restaurants and the theatre and playing golf.

When they reached 66, they both qualified for the state pension of £9,000 a year, so the annual withdrawal on their private pension pots was reduced to £22,000 a year. They continued to draw this until they reached the age of 75, by which time they were beginning to slow down, taking fewer holidays, largely confined to the UK, and going out less. Now their income requirement was down to £30,000 a year, meaning they just had to draw £12,000 a year from the pensions.

Five years later, they had given up driving, holidays were largely limited to occasional visits to the children and they hardly dined out. By this time, they only needed £20,000 net a year, which, after the state pension, only had to be topped up by taking an annual £2,000 from the pension fund, which still had a comfortable balance.

Paul and Mary enjoyed their retirement years and were able to fulfil a lot of dreams while they were still fit and healthy. They could do this because recognising that they would need less money in the later years meant they could afford to retire a couple of years early and load more of their spending into the earlier years. At Reeves we will sit down with you and discuss what your likely income levels will be at what stages and what you can afford. The result is often a pleasant surprise.

This article is for information only and should not be construed as advice or a recommendation. The investment strategies mentioned are examples only and may not be suitable for your particular: circumstances, tax position or objectives. Please seek independent financial advice before taking any action.

Investments carry risk, capital invested may go down as well as up and you may not get back the original capital invested.

Pilgrims Progress – A Journey of Changing Priorities

Your financial circumstances, needs and priorities change as you go through life and your investment strategy and retirement planning should reflect that.

At Reeves we classify our clients into three broad categories to mirror three key life stages: Growth; Pre-retirement; and Retirement. To illustrate how these might apply to you, we’ll follow the progress of one client, let’s call him Bob Pilgrim.

The Reeves Independent Growth Stage

The Growth stage typically covers the decades before the age of about 50, when you’re increasing your earning potential, building your wealth, and raising a family. In the early phase of this period, Bob, who is a manager in an engineering company, marries Judith, a marketing consultant. We advise them that, at this stage, they should concentrate on buying their first property and – again with our advice – they take out a Lifetime Isa to save for the deposit.

Once settled in their new home, they start a family and have two children: Daniel and Louise. With these commitments and responsibilities, we advise Bob that he and Judith should put in place income protection in the form of insurance. As Judith takes a couple of years off work to look after Daniel and Louisa, Bob is the sole breadwinner, so we advise him to increase his income protection, so that if he becomes ill, or otherwise incapacitated, their mortgage will still be paid. Also, he takes out life insurance.

We also advise Bob that his savings strategy should take into account both short term and long-term goals. At his stage of life he needs some liquidity in his investments so that he can access funds when necessary. He and Judith are keen, to start saving for their children’s university education. To meet these goals, he takes out a stocks and shares Isa.

For the longer term, we advise Bob to take full advantage of any benefits offered by his employer, in particular, the pension scheme. This is boosted by using a salary sacrifice arrangement. All this is carefully calibrated to take account of what is reasonable and affordable for Bob and his young family.

Reeves Independent manages Bob’s retirement fund for him. The usual long term investment strategy for someone of this age is to adopt a passive strategy, to hold investments through dips in the market, confident that it will recover and that the long term trend will be a rising one. This is suitable for someone with 20 or 30 years to go before retirement and so we manage Bob’s fund as part of our Core Portfolio.

The Reeves Independent Pre-Retirement Stage

The next stage is pre-retirement when somebody is in their late fifties or early sixties. This is an age when you should be making a big push, preparing for your retirement and maximising your pension saving.

At this point in his life, Bob has reached a senior management position and is earning more than he ever has before. Judith has also resumed her career and has been back at work for a few years. On the other hand, their outgoings are significantly reduced: Daniel and Louisa have been through university and are now fully independent and the mortgage has been paid off. This means there’s enough surplus income to allow Bob and Judith to pay additional lump sums into their pensions, boosted by generous tax reliefs, before the end of each tax year. At Reeves we conduct an annual review of their finances to help them judge what is reasonable and affordable. We also advise them in reviewing their insurance provisions, to ensure that their level of protection is keeping up with the value of their assets.

Towards the end of this period we talk through their attitude to risk and they agree that a more active investment strategy is appropriate, so we move their pensions into our Tactical portfolio. We also ensure that their funds include at least one year’s worth of cash to ensure their plans will not be knocked off course by any short-term market fluctuations.

The Reeves Independent Retirement Stage

The third stage is retirement. This is when Bob and Judith can enjoy the fruits of all their hard work and saving. They take the holidays they always dreamed about, spend more time on their hobbies and indulge their love of going out with friends. Again, at Reeves we conduct a full review of their income needs to ensure that their plans are manageable and affordable and we conduct further reviews twice a year to ensure that they remain on course.

Throughout the course of the retirement phase, we advise Bob and Judith on drawing down from their pension pots in a way that means they pay as little tax for as long as possible. We also advise them on their estate planning, helping them to draw up wills and powers of attorney.

At Reeves we are there for them at every stage of the journey, strategically building towards their retirement goals in a way that is affordable and appropriate to their changing circumstances. But, no matter what part of life’s journey you are at, we can help you work towards your retirement dreams.

This article is for information only and should not be construed as advice or a recommendation.  The investment strategies mentioned are examples only and may not be suitable for your particular: circumstances, tax position or objectives.  Please seek independent financial advice before taking any action.

These articles are for information only. These articles are based on specific clients and their situation may be different from yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

Pension Drawdown: Avoid this costly mistake

For many of us, the introduction of the phased drawdown pension has been a wonderful thing, bringing greater flexibility and freedom to retirement planning.

Used properly, a drawdown pension gives you greater choice over your date of retirement and how you tailor your income to your age during retirement – all in a tax efficient way.

However, as always in life, freedom comes with possible dangers. There are rules surrounding drawdown pensions and, unless you’re aware of them and operate within them, you could pay come costly penalties.

Let’s take the case of two investors: Bill Hodge and Chris Mann (not real client).

Drawdown without professional advice prior to becoming a Reeves Client:

Bill, who was in his late fifties, had previously taken some tax-free cash out of his pension and still had a sum of money on this drawdown pot. About 18 months after this, he needed £3,000 to pay for his son’s honeymoon and, without taking advice, he took the money from his drawdown pot.

This immediately had two bad consequences.

First, Bill incurred an immediate tax liability on that £3,000, as it came from the taxable part of his pension. Second, and more serious, this withdrawal triggered the money purchase annual allowance rules, so that in future, the amount of tax relief Bill can get on his pension contributions is limited to an annual £4,000 gross.

Unfortunately for Bill, he continued to contribute into his pension after this event, he had assumed that he could pay the money back in without consequence. He made a lump sum contribution of £10,000 gross (£8,000 net). Bill had to pay back the tax relief received which equated to £1,200. He also had to pay this from his own pocket.  Bill was 59 and had been hoping to pay £10,000 into his pension for the next six years. This mistake has cost him a further £7,200 in the tax relief he could have earned over those years.

Drawdown with professional advice

Chris Mann, on the other hand, who was in similar circumstances, took advice. As a result, he took part of the money he needed from his ISA and the remaining balance came by withdrawing tax-free cash from his accrual pension. This way, he had no tax liability and did not fall foul of the money purchase annual allowance rules. By the age of 65, he will be £8,400 in tax relief better off than Bill Hodge. This is because he took advice before he acted.

This article is for information only.  Pensions and pension legislation can be complex and if mistakes are made these can be irrevocable and costly.  We always recommend you take independent financial advice before taking any action.

These articles are for information only. These articles are based on specific clients and their situation may be different from yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

Foresight and Diligent Management

Thanks to the coronavirus epidemic, the UK’s FTSE and the US’s Dow Jones market indices saw their biggest quarterly drops in the first three months of the year since 1987. They both fell by about 35% and, while there has been some recovery, at the time of writing, the FTSE is still down ​significantly.

At Reeves, however, our cautious portfolio ​has pro​vided positive returns. Even our adventurous portfolio performed 13% better than the FTSE as a whole. In large part, this was because for some months prior to coronavirus we had been concerned that markets were overvalued and were overdue for a correction, so, as 2020 opened, we had adopted a defensive stance, with larger holdings in cash and bonds.

Reeves Portfolios = P05, P02, P17, P12, P09, P15              Benchmark = FTSE 100

Having weathered the initial storm, now is a good time to chart a course for – hopefully – calmer waters ahead. Some of the responses to the questionnaire we sent out to clients revealed that it might be appropriate for some to move to a more adventurous investment strategy, perhaps from cautious to balanced or from balanced to adventurous. These are clients who are typically many years away from retirement.

One 45-year-old client contacted us recently as he was concerned by the fall in the value of his balanced portfolio during the crisis. During our discussion, we pointed out to him that, given his circumstances and that he was about 20 to 25 years away from retirement, he could see the current state of the market as a buying opportunity. As a result, he moved to an adventurous portfolio.

It’s important to recognise that circumstances change and what might be appropriate under certain conditions doesn’t necessarily suit your interests at other times.

On your behalf, we study the markets as they evolve and we have developed a sophisticated and proven system for translating our analysis into easily understandable advice. We send our clients an email every eight weeks with our latest investment advice, a recommended course of action and a brief explanation of the reasons behind it. These emails are the result of eight weeks of detailed market research by our external and internal analysts and investment advisers.

This team produces weekly market outlooks discussed at weekly meetings and one analyst looks at every fund and portfolio on a daily basis, so that none goes unmonitored for more than one working day. At every meeting we review whether on that day we would create the same portfolios again and, if we decide that we wouldn’t buy an investment on that day, then we take the view that it shouldn’t be in our portfolios at all.

These weekly meetings are supplemented by a meeting held every four weeks to discuss a report prepared by the analysts. This means that every email with recommended investment decisions is the product of no fewer than 10 meetings.

We also use high level external advice and receive visits and presentations from managers of funds held within our portfolios. We subject them to some tough questioning to gain insights into each fund and to add to our constantly evolving picture of the way the market is moving.

This tried and tested system is structured, but, as the coronavirus crisis has demonstrated, it remains flexible enough to react immediately to extraordinary market conditions. If you have any questions about your investments or want to discuss your appropriate level of risk, get in touch with us

'Investing is a long- term commitment. Your investments can go down as well as up and you may not get back the original capital invested'.

These articles are for information only. These articles are based on specific clients and their situation may be different from yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

Be Reassured

Coronavirus has had a massive impact on everybody’s lives and we have been keen to reach out to our clients to offer reassurance and advice.

That’s why, in April 2020, we sent a questionnaire out to all our clients to discover their individual concerns and problems during the crisis, which we followed up with one-to-one conversations.

We cannot offer health advice, but we can talk to everyone and chat through their financial concerns to try to leave them feeling more positive about the short-term situation and their longer-term retirement planning.

The replies to the questionnaire threw up some common themes and we thought it would be useful to share these, along with our observations and general advice.

Not surprisingly, a significant percentage of you felt that reviewing your retirement plans had become more of a priority because of the current crisis.

As we’ve already noted in the newsletter, many people have had the opportunity to sit back and reflect on their lives and their priorities. They have been working hard for perhaps 30 or 40 years and now that they have more time on their hands, for the first time, they have been able to take stock and reflect on the future. Some have decided that there’s more to life than work and that they want to bring forward their retirement date.

For all our clients, we undertake a review of their financial situation, at least once a year, where we look at their assets, pension provision and likely outgoings in the years ahead. We discuss with them their preferred retirement date, agree what’s feasible and then draw up a plan of the steps they need to take to achieve their goals. Often we can demonstrate that maybe they can retire now, or at least that they don’t need to wait as long as they thought.

During these days of enforced rest, a lot of clients have also been reviewing their historic pension arrangements. This is sensible for three reasons.

First, you should review things from an investment point of view. Are you making the correct investment decisions? How many years are you away from retiring? We have just suffered a significant market fall, so do you need to review the level of risk you’re willing to take to meet your retirement targets?

Second, if you have lost your job, or are under threat of losing it, it’s a good idea to review your pension provider. Is there a better place for your pension and a better strategy for investing it?

At Reeves, we can pull together the information on any historic pensions and then we can provide advice as to what is the best treatment of those funds, given your aims and circumstances. There will, for example be administration benefits in consolidating a number of pension pots into one. It’s hard to have a coherent investment strategy for funds which are split between a number of different providers.

Third, if your income has been affected by the crisis, then your level of contributions may have been reduced, so, again, you should review, how this might affect your retirement plan. If you have spare resources, you might want to pay a lump sum into your pension.

On the other hand, a lot of clients are reporting that while their income hasn’t changed their expenditure has fallen. They’re not spending money on leisure or travel, for example, which could be redirected towards retirement savings. If you have had to abandon plans for your summer holiday, perhaps the money saved could be added to your pension pot.

Another common concern among our clients that the questionnaire threw up, was reviewing wills and estate planning. This epidemic has taken or threatened a lot of lives and has inevitably prompted many of us to reflect on our mortality.

We always advise our clients to make a will as a matter of priority. Now it’s even more important. Even when an estate is below the £250,000 threshold, under which the estate goes to the spouse, having a will in place can avoid a lot of problems and delays with certain insurance and pension providers. It’s also the only way of ensuring certain specific wishes and bequests are carried out.

Thanks to the coronavirus restrictions, it’s more inconvenient than usual to make a will, with high street solicitors being closed, but, at Reeves, we provide a will writing service. It involves filling in a questionnaire online which takes about 15 minutes. We can then draw the will and post it to you to sign and have witnessed.

We sent this questionnaire to all our clients to gauge their concerns and so that we could provide some reassurance during these unprecedented and worrying times. The feedback we have is that this exercise has been appreciated. We emphasise, however, that this is not a one-off. We are always at hand to answer any of your questions, whether about the state of the markets in general or your particular pension arrangements. Just pick up the phone.

These articles are for information only. These articles are based on specific clients and their situation may be different from yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

Coronavirus – A Tale of Two Clients

We never know what’s around the corner, goes the old adage. And if we didn’t realise that before, this pandemic has certainly brought it home.

We’re living in a world now which few of us could even have imagined only a few short months ago, with day-to-day life transformed and plans for the future up in the air.

It has also given people plenty of time to reflect and, at Reeves, we have been talking to a number of clients who have been looking at their financial circumstances and retirement planning in light of the coronavirus. To them, where the future had once seemed assured and predictable, now new possibilities have opened up. For some, these are frightening possibilities, while for others they can be exciting.

For the purpose of the following example scenarios, we have changed the clients’ names.

One client, Robert Cameron, contacted us to tell us that his employer had had to put him on furlough and he was worried that the lockdown would hit the company so hard he was going to lose his job altogether.

Robert is 60, and doesn’t rate his chances of getting another job, particularly not at the same level of salary. He was earning £60,000 a year and, following Reeves advice, he had been making regular contributions of £10,000 a year into his pension fund, planning to retire at the age of 62. Suddenly, he was afraid that these retirement plans lay in tatters.

We talked the situation through with him, reviewing his assets and the level of income that he would realistically need and, together, we came to the conclusion that this was significantly less than he had originally thought.

Now he estimates that in retirement, he will need £24,000 a year. He has built up enough in his pension fund to be able to draw down this amount every year until he reaches the age of 67, at which point he and his wife will both receive state pensions of about £9,100 a year. This will considerably reduce the call on the private pension, which should then comfortably be able to top up his income until he reaches the age of 75. At this which point he will have much lower outgoings which the state pension will cover.

Talking him through this and pointing out that, if necessary, he could afford to retire today and still fulfil all his dreams was a huge relief to him. Now, Robert regards every month he is still in work as a bonus.

Another client, Keith Moore, is of the same age but, while he had been saving for his retirement with Reeves help, it was not something he was looking forward to. He has worked all his life in senior management positions and was convinced that he would be bored to distraction once he had finished working. Being furloughed, however, has been a revelation to him. He has found new enjoyment in his garden, has taken up long neglected old hobbies and is keen to explore some new ones.

Keith spoke to us to see whether he could adjust his plans to bring forward the date of his retirement by three years. Again, we reviewed his pension and his required income and we were able to advise him that he could comfortably afford to give up work early.

So, no, we never do know what’s around the corner, which is why it’s important to have the kind of flexibility that a drawdown pension can bring. It’s also important not to sit and brood about things, worrying alone, but to contact your Reeves adviser, so that, together, we can look at the options available.

These articles are for information only. These articles are based on specific clients and their situation may be different from yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.