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Reeves Blogs

Sounds Like a Plan

Updated: Jul 21, 2022

A primary purpose of a retirement plan is to encourage and enable a client to focus on and then define their specific retirement goals.

In drawing it up, we pose a number of questions.

What income level will you need to enjoy the lifestyle you want to achieve in retirement? Typically this will be expressed as a proportion of your working salary - usually without the regular mortgage or debt repayments – and 60% of income is a good benchmark.

When will you retire? State pension age is 67 but do you really want to retire then, or is earlier better? On the other hand, some people want to continue to work.

Are you looking at full or semi-retirement? Will there be any part time work involved?

Do you have any other assets? Just because your pension pot might not offer you the early retirement you wish to achieve doesn’t mean it isn’t possible. There may be ISAs, or other property which makes it attainable.

A properly drawn up retirement plan brings a number of benefits.

We can use it to show you whether - subject to a few assumptions - your retirement goals are achievable. If not, we can also show you how you may be able to get there – whether through pension contributions, property downsizing or potentially factoring in an inheritance you know you will get in future. We should point out here that when we do the retirement plans, we use conservative assumptions, we never overestimate how your retirement may look.

A retirement plan is not set in tablets of stone. When your plans change, we can change the retirement planner easily, so you are never committed to just one path for retirement – you have the freedom to change your mind.

We drew up a retirement plan for Alan and Claire Smith.

* Please view the full Retirement Plan here

As with all plans, we made a number of assumptions: that inflation will average 2%; investment growth will average 5%; and that Alan’s life expectancy is 90. We also included our 1% ongoing portfolio management service charge and assumed the state pension increases under the triple lock guarantee, which means it grows in line with whichever is highest of earnings, inflation or 2.5%. We have assumed the minimum growth of 2.5%.

Alan was aged 55, with total savings of £340,000 - split between his pension, ISA and in the bank - and an ambition to retire at the age of 62. Like many clients, Alan didn’t want to give up work entirely but was looking to phase retirement from age 62. He thought he would need about £1,000 a month from his pension to supplement his employment income.

At age 65, Alan will then fully retire and all of his income will be taken from pensions and savings. He estimated that at this point his income need would be £36,000 a year. At this age he will not yet be entitled to his state pension, so his income will have to come from his own pension fund until he reaches the age of 67, when he will be entitled to his state pension which will contribute to the required £36,000. All of this is built into the retirement plan and reflected in its cash flow forecast.

At Reeves, we appreciate that, if you have a partner, retirement is a joint plan and therefore it’s sometimes more beneficial to think about what your joint retirement need is rather than sole income. Therefore, we included Claire’s state pension from her age 65.

The plan’s cashflow forecast shows that, when Alan is into his seventies, his expenses will drop significantly. This is something we typically see: at this age clients tend to be going out less, taking fewer holidays and generally spending less money. Personal pensions allow for a greater level of flexibility to reflect this, so you can reduce your income when you think it’s appropriate (in this case, age 75) and leave any additional funds in a pension, which is a tax efficient environment.

Later in life, Alan and Claire think they might downsize their property to release equity (in their case an estimated £100,000). This has also been built into their plan.

The articles are 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.

Names have been changed to protect identity.

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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