Category : retirement advice

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6 Mistakes Retirees Make With Their Finances

Posted By: Phil Handley DipPFS AwPETR On January 22, 2017 Category: retirement advice

You might think that having a guaranteed state pension or a generous package from your employer means you can move into retirement with ease. There’s a major problem with that perspective. While generous pension plans are valuable, your financial future may be at risk if you do not give thought to your entire financial life.

  1. No Financial Plan

A professional financial plan covers all aspects of your life and finances. It takes your pensions, property, current expenses and likely future expenses (e.g. international travel, nursing or gifts to grandchildren) into account. A well-crafted financial plan will also consider your tax situation, charitable goals and estate planning.

Without a financial plan, your financial future will suffer. Without a plan, you will have no idea how to respond to a 2008 style financial crisis. You can have peace of mind to sleep each night when you know you’re ready to respond to any change, even if the government changes the rules on pensions!

Action Step: Meet with a qualified professional to create a personalized financial plan

  1. Missing Restrictions Regarding Survivor Benefits

What would happen to your pension if you were to die or became disabled tomorrow? Does your spouse know what to do to next in order to maximise the value of the pension? If you’re like most people, the answer to both questions is probably no. If you make this mistake, your family will suffer added stress and pressure.

Fortunately, this mistake can be solved with a few hours of work. Start by creating a complete file of your pension information. Make sure that statements, phone numbers, forms and related materials are included in your file. Once your pension file is complete, take the time to meet with your spouse to review the documentation. With a complete file in place, you’ll feel more comfortable your loved ones know what to do.

Action Step: Create a file folder fully documenting your pension and related financial assets and discuss it with your spouse.

  1. Investing Too Little Money

Financial experts constantly talk about the power of compound interest to create wealth over time. However, that process cannot happen if YOU save and invest too little money. The amount of money you should invest each year depends on several factors including your current income, the value of your current pension and the results of the investment markets.

Action Step: Review your investments from the past 12 months and determine how much you have actually contributed. Once you have this information, meet with a financial professional to determine if you are on track to achieve your retirement goals.

  1. Too Much Investment Caution

Did you know that interest rates in the early 1980s were high – well over 10% – for many countries? That situation meant that retirement investors could purchase government bonds and earn a significant profit. Unfortunately, that circumstance is long gone. If your investment strategy is focused exclusively on low-risk government bonds and similar investments, your retirement savings will likely be eaten away by inflation. In addition, the value of the UK’s best known type of bond – Gilts – have been falling in recent months as investors have been worried about the future of the UK economy.

Action Step: Does your current portfolio – including stocks, bonds, savings and other assets – meet your long term financial goals for retirement?

  1. Making Inheritance Assumptions

Everyone has heard stories about a friend who suddenly became wealthy when they received an inheritance. For most of us, relying on money from an inheritance is a major mistake. First, you have no ability to predict when (or if!) you will receive money from an inheritance. Second, it’s easy to overestimate what you might receive as an inheritance (i.e. your elderly relatives may spend all of they money for their own retirement). Finally, some people die with debts and loans and bankers are usually first in line to be paid before anybody else receives a payment.

Action Step: Take the time to think through your assumptions for retirement. Have you avoided developing a financial plan with professional guidance because you assume an inheritance windfall will suddenly appear? Wishful thinking is no way to plan for your future.

  1. Making Property Assumptions

The success of property TV programs like Property Ladder and Safe as Houses have led many people to become excited about the value of Property. The implicit assumption for retirees -that selling their home will cover all of their financial needs. In fact, the Daily Mail recently reported that more than three million Britons plan to sell their home and “downsize” to a smaller home in retirement.

First, an ever growing number of retirees will attempt to sell property to fund their retirement. As more and more property comes onto the market, housing prices will decline. This a long-term risk to consider if your retirement is still many years away.

Second, selling your home means you will have to find somewhere else to live. The Daily Mail’s analysis found that the typical detached home sells for about £310,000 while you can expect to pay somewhere around £197,000 for a semi-detached home. That leaves less than £120,000 pounds as your gain from retirement housing downsizing. It may help but it’s not enough of a windfall to provide for your retirement needs.

Action Step: Seek out an estimate of your home’s value and what kinds of housing you would like to purchase next. In addition to the financial aspects, keep in mind the non-financial implications of moving such as being further away from family and facilities.

9 Mistakes people make in retirement

Posted By: Phil Handley DipPFS AwPETR On December 29, 2015 Category: retirement advice


Asset Rich – Cash Poor

It’s a very traditional thing in Britain to own your own house, after all an Englishman’s home is his Castle. People often refer to their own homes as an investment, it’s only an investment if you are personally going to see a return.

All too often people spend their lives paying off their huge mortgage at the sacrifice of their pension savings. A large house, even though paid off in retirement will attract large gas and electric bills together with higher council tax.

Without a sufficient pension income to cover the household bills, retires can be faced with two choices.

Downsize or Release Equity

Not Changing Spending Habits

There’s often a big difference in income between pre and post retirement. Working for many years you may be used to going out for dinner every week and having 5 holidays a year. Adapting to a change in lifestyle and habits is sometime a culture shock. For those that don’t change, there is a nasty surprise when the money runs out and it’s too late.

Complete a budget planner for pre and post retirement to see what your expenditure is and needs to be. Think about what you can cut back on but also take into consideration future potential health care costs.

Taking your eye off your investments

As we move through our lives we generally become more risk averse. The same should be true to our investment portfolios. With the new pension freedoms meaning more people are staying invested instead or buying an annuity, ensuring your portfolio is invested sensibly is critical.

Complete a risk profiling exercise by yourself or with the help of a financial adviser. Analyse the results and make sure your portfolio mirrors your views on investment risk.

Spending tax-free cash too early

Many people seem to treat the 25% tax free cash allowance as a bonus. It’s spent on cars, holidays, home improvements and other such excesses.   Just because there isn’t any tax to pay on it, it doesn’t mean it’s to be used on luxury items rather than living expenses.

The tax free cash portion of a pension should still be treated as an income and budgeted wisely. It’s often a good idea to invest it in deposit accounts and drip feed it back as annual income.

Failing for a scam

We’ve all read about the scams people fall for in newspapers. Unfortunately, there are some quite persistent and unscrupulous people out there who taken pensioners. The pension reforms have created new opportunities for criminals who try to convince people to hand over their pensions.

Withdrawing all the pension as a lump sum

Until April 2015, retirees had to buy an annuity or take pension drawdown with an annual income cap. Now, the full pension pot can be withdrawn as a lump sum.

A mistake people have commonly made since the reforms in not to consider the tax implications of doing this. Any income taken, outside of your tax free cash, is taxable. Therefore, large portions of a pension can be taxed at 40% or even 45%.

Use this calculator to understand your tax position.

Providing for adult children

A pension fund is there to replace the income lost when you finish working. It’s your savings pot to last you through your retirement years. Once it’s gone it’s gone. Care should be taken before deciding to donate a large proportion of this to your children for a house, wedding etc.

As we are all living longer it’s imperative we are conservative with how we spend this, especially in the early years. Planning is key. Estimate how much income you need per year and how long you are going to live based on national statistics. Although it’s not an accurate science it’s about planning rather than hoping everything will work out.

Children have become more of a burden now that they ever were financially. The baby boom generation have been the wealthiest ever, and probably ever will be. There isn’t anything wrong with helping your children out, just not at the expense of your financial well-being. Their time will come, as yours may have, through inheritance.

Not staying active

A large pension fund isn’t any use without your health. Many people retire from work but also from exercise which can lead to an unplanned shortening of life. There are many activates to keep a health heart aimed at the older generation.

Explore some of these.

Find a Bowls club

Find a Golf Club

Find a Rambling Club

Find a Gym

Not keeping your mind active

One of the biggest fears we all have is to deal with alzheimer’s, either ourselves or in our loved ones. Keeping the mind active after you stop working is a good way to prevent the onset of alzheimer’s. Think of your mind as you do your body. If you suddenly became a couch potato after being active for 40 years, your body and heart would quickly deteriorate. The same is true with your brain.

It’s never too late to learn something new. Find a local course and keep your brain active.

Pensioners lose thousands by not shopping around

Posted By: Phil Handley DipPFS AwPETR On August 4, 2015 Category: annuities drawdown pension retirement advice

The latest retirement report by online financial service technology provider Iress, has highlighted some shocking statistics. For years the Association of British Insurance (ABI) campaigned to encourage people to shop around before buying an annuity. Their hard work was gaining some momentum until George Osborne stated in March 2014 that no will have to buy an annuity. The ABI’s latest figures show that 67% of people stayed with their existing provider in Q1 2015 compared to 47% in Q1 2014.

The best and worst standard annuity rates measured were 5.41% and 4.60% respectively. The different this represents using a pension fund of £100,000 is £810 per year. It seems the ‘shopping around’ message is no longer getting through with all the other news stories now hitting the headlines regarding pensions.

The main product to gain from pension reforms was income drawdown, with sales up 72% according to Iress. Drawdown is tempting retirees because of the full access and flexibility it offers, but is a more complex product to run. The same inertia is being experience with people not shopping around for a different provider. The negative results with drawdown can be even more dramatic however.

A retiree with a pot of £250,000 who withdraws 6% a year may face charges over a decade of anywhere between £16,325 with LV= and £26,490 with Scottish Widows, according to Which? This is a difference of over £10,000.

It’s understandable that due to its complexities, people are sticking with their existing pension provider and simply switching it to drawdown. The financial effect will never be known as there is no easy method of comparing plans once they’re started.

The value of financial advice in the at-retirement area can’t be more apparent with the above two examples. There is a cost to financial advice which is sometimes difficult to understand, but good financial advisers know this market which can ultimately save you thousands over your retirement.