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Dave’s financial plan for a dream retirement

Retirement planning has undergone some radical changes over the past 20 years

Dave knew he had to have a plan for a successful retirement 

There was a time when pensions were relatively straightforward, but that has changed significantly in the past two decades.

Final salary pensions are becoming less common and the qualifying age for a state pension has been increased, with pensions expert Malcolm McLean predicting it will hit 66 by 2020. Conversely, people have been given the ability to access their pension funds with greater flexibility.

To do this you, must have an idea of what income you’ll need in retirement and, for the plan to be realistic, you need to recognise that it will vary during your retirement.

For one client Dave Smith, 60, he knew would have to plan incredibly carefully to ensure that the retirement he had fantasised about for years would become reality. 

Dave realised that, to get the ball rolling, he would need to have a substantial period of good growth. This is the stage running up to retirement when Dave was still accruing wealth - at a greater rate than at any other time in his life. His children, Andy and Kelly, had left home and got their degrees. They were largely paying their own way in life – barring any naive financial choices. 

''You must have an idea of what income you'll need in retirement - and you need to be realistic in your plans.''

Dave was in a senior position in his career, as a Marketing Executive – with the highest salary of his working life. As a smart and savvy man, Dave decided to start making plans for his retirement. 

Dave gave up work at 57 - a number of years before the state pension age. 

These are the golden years of his retirement. Dave and his wife, Jacqui, realised their ambitions of going on a cruise and visiting her sister in Australia - whilst they were both still fit and healthy. Dave also bought and restored a vintage British motorbike. Fortunately, their outgoings are much lower, with the mortgage having finally been paid off just before he gave up work.

This means that he needs an annual income of £25,000. He has his pension and an ISA, as well as cash savings. Dave will continue working part-time as a Marketing Assistant for his daughter's catering business - which will earn him £8,000 a year.

With our advice Dave and his wife realised their ambitions 

We advised Dave to make up the difference of £17,000, between his outgoings of £25,000 and his part-time income every year, by using his ISA savings and by drawing £4,500 out of his pension.

That way, he is making full use of his £12,500 annual income tax allowance - which would otherwise be lost. He is also safeguarding his tax-free savings for the future - which will be vital to him. If you don’t use your income tax allowance, you are effectively inviting the taxman to take money off you in the future.

In seven years’ time, Dave will qualify for the state pension of £7,500 a year. He and Jacqui will have fulfilled their greatest – and most expensive – ambitions, but they will most likely still be active, in good health and want to travel.

For this stage in his life, Dave only needs £20,000 a year. However, he will have given up his part-time job, so he can relax after a hard-toiled career. After all, he has worked hard for this. After his state pension, he must find £12,500. Therefore, he will draw £5,000 from his pension - to use his income tax allowance - with the balance of £7,500 coming from his savings.

''If you don’t use your income tax allowance, you are effectively inviting the taxman: 'At some point in the future, tax me on this money’.''

By the time Dave hits 77, he intends to slow down. He and Jacqui will only travel occasionally, will go out less often and have given up driving. So, by then, Dave can comfortably get by with an income of £12,500. All of this can be met from both his state pension and own pension - without paying any tax.

Like Dave, many people can do much more in their retirement years than they may have thought possible. That's if, of course, they plan and don’t just drift into retirement.

You must realise and plan for the fact that your income needs will change as you get older. For the best - and most tax-efficient way - to structure your retirement strategy, you should always seek professional, independent advice. That's where Reeves Independent can really help you. 

Reeves Independent is a FCA (Financial Conduct Authority) regulated company - which can be checked by using the FCA register - with over 20 years' experience of offering expert financial and retirement advice. 

Click the button below for a for a free initial review of your pension situation.

Names have been changed to protect identity. These articles are for information only and are based on specific client circumstances which may be different to 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.

Companies encourage transfers out of pensions – Reeves can help you make sense of it all

Barnett Waddingham, the pension consultants, have conducted some interesting analysis.

Companies are trying to get their employees to swap traditional retirement incomes for a lump-sum

Roughly one tenth of big listed companies have sought to coax their employees, past and present, to shift out of traditional pension schemes over the past five years.  

That's according to analysis conducted by pension consultants Barnett Waddingham. The study, released last week, revealed that these 'transfer exercises' have been offered by roughly 10% of schemes sponsored by FTSE 350 companies - diminishing their pension deficits by as much as £2.5bn. 

Such exercises can be contentious, as they encourage members to swap guaranteed retirement incomes, for life, for a lump-sum. Of course, they can be justified where members have other generous pension arrangements or short life expectancy.

Due to rock-bottom gilt yields, pension transfer values have soared. Participants of customary final-salary-style schemes can be offered lump-sums of 30 times their pledged retirement income or more. Some employers have offered supplementary perks, including top-ups of as much as 20%.

''About 20-30% of pension fund members aged over 55 were taking up transfer offers.''

Employers enjoy transfer exercises, because they slash the ambiguity of long-term liabilities and speed them up to the point where, they can contemplate an insurance company buyout, passing over the complete assets and liabilities of their scheme to a life company for an arranged upfront fee.

Earlier this month, Barnett Waddingham revealed that roughly 20 to 30% of pension fund managers, aged over 55, were taking up transfer offers. The take-up rate was far lower for those under-55, who can't gain access to their pensions instantly.

The calculations were estimates only, based on analysis of spikes in total benefit payments, made by FTSE 350 companies. These climbed, in aggregate, from £20 billion to £25 billion a year from 2012-14, to as high as £42 billion in 2017. That's before dipping to £38.5 billion in 2018.

There's much to ponder - but Reeves can help you

It may all seem a bit confusing, between what you should and shouldn't do, between what's right and what's wrong. That's where professional advice can be of great value to you - and that's where Reeves Independent can help.

Reeves Independent is a FCA (Financial Conduct Authority) regulated company, with over 20 years’ worth of experience in offering expert financial and retirement advice. We will determine your attitude to risk, in order to see what you're comfortable with, in regards to your investments. Thereafter, we will assess all the options available to you. From there, we will work with you, in order to help you achieve a sizeable pension pot - with the aim of enabling you to realise your retirement goals. Reeves will aid you in this via smart and confident investment. Furthermore, we'll communicate with you on a regular basis to let you know our recommended course of action for you, as well as to let you know how your investments are performing. 

We see our relationship with clients as being closer to friendship. We are not here to make a quick penny - if we believe something isn't right, we will tell you so. What we want is to help our clients achieve the best possible retirement. Clients work hard in their careers and we feel they deserve the best retirement they can get. That's why we’re here; to help you get the most out of your pension and to help you achieve the best retirement possible.

Reeves Independent offer a free financial review of your pension situation. Click the button below to get started.

Taken from an article in The Times by Patrick Hosking on 14th October. These articles are for information only. 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.

Low interest rates are killing chances of a decent income in retirement

Some believe that rates are at their lowest for more than 25 years - but Reeves can help

Low interest rates are making it hard

Last month it was reported that annuity rates had plummeted to a 25-year low – however, some believe that interest rates are at their lowest for a much longer time than that. In the 1990s, £100,000 would have bought a 65-year-old an income for life of about £10,000 a year- today it will buy little more than £4,000 a year.

It’s worse than that - those are not inflation-protected annuities. If you want an income that will maintain its value over time, then that £100,000 will buy you an income of somewhat less than £3,000 a year. Essentially, you’ll spend your career scrimping and saving, worrying about the future. To get together a seemingly large pension pot of £500,000, and what you'd currently receive is a pension of less than £15,000 a year.

Lower interest rates have driven the most recent decline. It is also the reason behind the long-term decline, impacted further by the financial crisis in 2008. 

The consequences of this shift, though, are far more fundamental to our system of pension saving than either government or those of us desperately trying to save for our old age seem to appreciate.

It's going to be harder for younger people to save in the future

With traditional salary-related occupational schemes becoming scarce outside of the public sector, most of us don’t have a great chance in replicating the comfortable incomes enjoyed by many of today’s retirees.

Astonishing as it may be, the fact is most pensioners today are financially better off than they were during much of their working life. Once you take account of housing costs and the costs of bringing up children, they have a higher disposable income in their late sixties than they had when they were in their forties.  Today’s 40-year-old's should not look at their parents’ generation and expect anything remotely similar.

These low interest rates have had an even more fundamental effect on our system of private pension provision, though.  

''Despite these tough times, Reeves Independent can help you.''

Of course, at first glance, it makes for grim reading. However, it may not be as bad as it seems. Reeves Independent are experienced financial and retirement advisers. Yes, the facts above are true. But that doesn't mean you can't have a healthy retirement income.

The era of many retiring in their early sixties on a sizeable pension, possibly, will soon be over. In the future, due in part to these low-interest rates, you may have to work beyond 70.

However, no one can predict what the case will be. At Reeves Independent, we don't work on assumptions. We work on tried-and-tested research methods, industry leading communication and recommending regulated products and funds that we believe can get the best potential returns for you. We firmly believe that through proper monitoring and analysis of market movements and trend analysis we can make the right recommendations to yield a better return from your investments.

Through smart decision making and sound recommendations we believe we can set attainable, realistic goals for you - and that you can potentially retire well before 70.

Reeves Independent work hard to make sure we can get the best results for your portfolio.

To start your free initial review of your pension situation, click the button below.

This article was taken from The Times, written by Paul Johnson - Director of the Institute for Fiscal Studies. These articles are for information only and are based on specific client circumstances which may be different to 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.