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.

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