Topic: Family financial planning

Did You Inherit Your Beliefs About Money From Your Parents?

Parents know that children hear, see, and pick up on everything that is going on with the adults in their lives. And when you were a child, you were no different.

Many of the attitudes we have about money were formed at a very early age as we absorbed how our own parents dealt with their finances. Some of these beliefs, such as a commitment to disciplined saving, are positive. Others, like skepticism about the stock market, can be more harmful than helpful as we try to build wealth in our own lives.

Answering these four key questions can help you look at your financial upbringing with a fresh perspective. When you’re done, think about which money beliefs you want to pass on to your own kids, and which might be preventing you from living the best life possible with the money you have.

1. What was money like growing up?

Your childhood experiences of money are a composite of details both big and small.

You probably compared the comforts of your home to what you saw next door and drew some conclusions about how comfortable your family was.

Did your parents get a new car every couple of years or drive around in the same car until it died? Did you take frequent holidays? What were holidays and birthdays like?

Watching mum and dad carefully balance their bank account or set next week’s grocery budget also might have made a strong impression. And at the more serious end of the spectrum, an unexpected job loss, debilitating medical condition, or death could have had a profound impact on your family’s finances.

2. What was money like for your parents growing up?

Many baby boomers were raised by parents who had to tighten their belts during the Great Depression and World War II. They probably impressed upon your parents the value of the hard work, the importance of saving, and perhaps some real apprehension when it comes to money. Your parents may have passed on these same values to you or swung in the opposite direction and tried to make money as stress-free as possible.

How much do you know about your parents’ childhoods? If they’re still living, ask some questions that will fill in your family’s history a little more clearly. You might learn something surprising. And you might gain some insight into how their experiences of money are still affecting you.

3. What specific lessons were you taught that you have continued?

Some people grew up in households where money was tight and may have viewed people with large amounts of wealth with suspicion or resentment. In other cases, hard-working adults have admiration for such people but underestimate how much hard work, risk and discipline it takes to build greater levels of wealth. Their children can learn to do the same.

On a more positive note, your parents may also made decisions that taught you what was more important to them than money. Perhaps they sacrificed their own leisure and comforts so that you could attend a good private school.

4. What was the best thing you were taught about money?

As a child you probably rolled your eyes whenever your parents passed on their beliefs about money or started reminiscing about what money was like when they were growing up.

Now that you’re the one doing the earning, some of those lessons probably ring true. “Live on less than what you make” is hard to hear when it’s used to explain why you can’t have a new bike or take a big holiday. No child wants to sacrifice their weekends or summers working part time because their parents insist on it. But the lessons that were hard to swallow when we were young often create attitudes and habits that benefit us as adults.

The sum of all these memories, the positive and the negative, is a blueprint to your financial thinking. It’s also the schematic that we use to build your life-centred financial plan. Come in and share your blueprint with us so that together, we can lay a strong foundation for your family’s future.

3 Ways to Know When You Are Ready to Retire

There’s a pretty good chance that your parents or grandparents retired simply because they reached age 60 or 65. However, today’s retirement is a bit more complicated than that and I’m not just talking about the changes that have been made to state pension age.

Whilst age is still an important factor, your ability to connect your financial resources to your lifestyle goals is what will truly determine if you’re ready to retire. Here are three important markers to cross before you crack open your nest egg:

1. You’re financially ready.

The most common question we field from our clients is, “How much do I need to retire?” While there’s no magic number to hit, a few key checkpoints are:

– You have a budget. Many clients who are preparing to retire tell us they’ve never kept a budget before. Time to start! If you have any big plans for early in your retirement, like remodelling your home or a dream holiday, let us know so we can discuss and model this expenditure to ensure it can be achieved.

– Your debts are paid. No, you don’t necessarily need to pay off a fixed-rate mortgage before you retire. But try to reduce or eliminate credit card balances and any other loans that are charging you interest.

– Your age, pension funds, and state pension benefits are in sync. If you’re planning on retiring early, be sure that your pension provider won’t charge you any early withdrawal penalties for which you’re not prepared. Ensure you have maximised National Insurance to provide a full state pension entitlement.

2. You’re emotionally ready.

We spend so much of our lives working that our jobs become a large part of our identities. Rediscovering who we are once we stop working can be a major retirement challenge. To prepare for this emotional transition:

– Talk to your spouse ahead of time. Don’t wait until your last day of work to discuss how both of you feel about retirement. What do each of you imagine life will be like? What are the things you’re excited to do? What are you afraid of? What can each of you do to make this new phase of life as fulfilling as possible?

– Make a list. What are the things you’re passionate about? Something you’ve always wished you knew more about? A skill you’d like to develop? A cause that’s important to you? A great business idea that was too ambitious for your former employer?

– Check that your estate planning is up to date. It’s understandable that many people avoid this part of their retirement planning. But putting together a legacy that could impact your family and community for generations can have tremendous emotional benefits. The peace of mind that comes from knowing the people you care about are taken care of can empower you to worry a little less and enjoy your retirement more.

3. You’re ready to do new things.

Ideally, the financial piece of this conversation should make you feel free enough to create a new retirement schedule based on the emotional piece. Plan your days around the people and passions that get you out of bed in the morning. Some ideas:

– Work at something you love. Take a part-time job at a company that interests you. Turn that crazy idea you couldn’t sell to your old boss into your own business. Consult. Teach. Volunteer.

– Keep learning. Brush up your school French by enrolling in an online course. Learn some basic web design so you can showcase your photography portfolio or sign up for cooking classes and get some new meals in your weekly rotation.

– Get better at having fun. What’s the best way to lower your handicap or perfect your backhand? Take lessons from a pro. The second best? Organize weekly games with friends and family.

– Travel. Planning out a big holiday can be a fun project for couples to do to together. And while you’re looking forward to that dream trip, take a few weekend jaunts out of town. Stay at the new hotel you keep hearing about. Visit your grandkids. Go on the road with a favourite sports team and enjoy the local flavour in a different city.

If you’re nearing retirement and struggling with these issues, working with us might provide some clarity.  Why not give us a call to discuss how we can help get you ready for the best retirement possible with the money you have?

Warning – The information noted above is for general information only and is not intended as personal advice.  Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

 

Protecting those that matter

Many of us spend time planning our future with the intention that our plans will come good. But making sure that you and your family can cope if you fall ill or die prematurely is something we can too easily put to one side. In particular, a recent study identified that financial protection is something that millions of fathers in the UK, and their families, could benefit from.

More than half (58%) of men in the UK with dependent children have no life insurance, meaning that just over 4.5 million dads[1] are leaving their families in a precarious situation if the unforeseen were to happen. Worryingly, this has increased by five percentage points compared with 2017, a year-on-year increase of around 542,000 individuals[2].

Financial hardship

Despite a fifth (20%) of dads admitting their household wouldn’t survive financially if they lost their income due to long-term illness, only 18% have a critical illness policy, leaving many more millions at risk of financial hardship if they were to become seriously ill.

Critical illness insurance – this doesn’t usually pay out if you pass away, so it’s not always suitable if you want to make sure your family are provided for after you’ve gone. This is where life insurance comes in.  However, this type of insurance covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.

Life insurance – this insurance usually only pays out if you pass away. It’s designed to help your family maintain their lifestyle after you’ve gone, for example, to pay off a mortgage or other loans and provide for children’s university fees.

Many insurers will offer both types of cover combined.

No savings

If they were unable to work due to serious illness, 16% of fathers say they could only pay their household bills for a minimum of three months. More than two fifths (45%) say they’d have to dip into their savings to manage financially, but 17% admit that their savings would last for a maximum of just three months, and 12% say they have no savings at all.

On top of this, many fathers are leaving themselves and their families unprepared for other aspects of illness or bereavement. 16% of them aren’t sure who would take care of them if they fell ill, and more than two fifths (42%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.

Risky position

This is an especially risky position for the two thirds (66%) of UK fathers who are the main breadwinner in the family, and it’s clear that many are in lack of a ‘Plan B’.

Many fathers don’t consider having insurance as a necessity, with 16% of those without saying they don’t see critical illness cover as a financial priority, and 20% saying they don’t think they need it. The value of protection, however, is to provide long-term peace of mind about having financial security in place for your dependents.

Seek advice

Life is full of uncertainties – and while we insure cars, houses and even holiday arrangements, when it comes to ourselves and our family, often insurance is overlooked and undervalued. The simple truth is we can get too ill to carry on working or tragically die too soon, either through serious illness or accident. These events are random, and they can potentially affect us all.  

Recent changes to bereavement benefits, and their continued unavailability to those in cohabiting relationships, mean that it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.

Unforeseen circumstance

 The impact of losing the family breadwinner can be devastating – missed mortgage repayments, savings depleted, your home being sold, your family’s standard of living eroded, with stress and worry all too evident.

 Whether it is your family or other loved ones, it’s essential to make sure that the people and things that matter to you are taken care of – whatever life throws at you.

Creating a durable plan for the future

We understand that expert advice on financial matters is invaluable in creating a durable plan for the future. To discuss what’s best for you and your family if the unforeseen were to happen, contact us so we can find the solution that’s right for you.

Source data:

All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5 and 12 April 2018, with a sample of 5,022 nationally representative UK adults.

[1] Percentage of adult population that are fathers with dependents = 762/5022 = 15.17%; 15.17% of adult population of 51,767,000 = 7,854,730 million; 58% of these don’t have cover so 4,545,848 million

[2] Percentage of adult population that are fathers with dependents = 735/5077 = 14.48%; 14.48% of adult population of 51,767,000 = 7,495,861 million; 53% of these don’t have cover so 4,003,721. Difference of 542,127 compared with 2017

Warnings:

Protection plans usually have no cash in value at any time and will cease at the end of the term.  If premiums are not maintained, the cover will lapse. 

Critical illness plans may not cover all the definitions of a critical illness.  The definitions vary between providers and will be described in the key features and policy documents if you go ahead with a plan.  

 

 

4 Things to Consider Before Financially Bailing Out Your Adult Children

I read an article recently and whilst it was based upon research undertaken in the US, I suspect there are likely to be similarities in the UK which is why I found the article thought-provoking.

The article suggested that according to a recent American study by TD Ameritrade, 25% of baby boomers are supporting their family members financially¹, with support to adult children averaging out to $10,000 per year. That’s $10,000 per year that parents aren’t saving.

Can your retirement afford that kind of generosity?

If you fall short of your retirement goals, is the adult you’re bailing out going to bail you out during your golden years?

So, before you write your ‘struggling young adult’ another big cheque, ask yourself these four key questions:

1. What, specifically, is this money for?

The key word here is SPECIFICALLY.

Many parents tend to err on the side of protecting their child’s feelings when weighing financial support. We know asking for money can be embarrassing, and we don’t want to deepen that embarrassment. Or we’re worried that if we ask too many questions the child will become frustrated and hide serious problems from us going forward.

These are understandable concerns. But it’s also important that you understand whether your child needs support because of something beyond his or her control (a car accident, serious health issues, unexpected job loss) or because they’re struggling with basic adult responsibilities. If your child is making poor budgeting decisions or settling for underemployment, you may be throwing good money after bad.

Be tactful but get to the root problem before you decide if your money is the best solution.

2. What is the real cost to me?

Many parents are already helping their adult children more than they realise.

For example, you might not think much of funding your adult children’s mobile phone or piggyback on the Netflix subscription. After all, it’s only £30 a month, right?

But how long have you been giving your child that monthly free pass? Years? You can also set time limits. For example, tell your child they have their mobile phone bill funded until age 25 or until they get married, whichever comes first.

Are you helping with larger monthly expenses, like car payments? When will it finally be time to pull the plug?

Get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child, large and small. Seeing how even small expenses accumulate over time will be eye-opening for both of you and help inform a good decision.

3. What are the terms of the bailout?

This is another area that parents tend to tiptoe around because they’re afraid of insulting their children. But do you know of any bank that’s going to loan your kids money indefinitely, charge no interest, and ask for no repayment? Then why should your money be subject to such lousy terms?

Your children have to understand that your generosity is not open-ended, especially as you near retirement age. You’ve probably made many sacrifices for them already. You should not sacrifice your financial security or the nest egg that is meant to support you in retirement.
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing, including a repayment schedule. In more serious cases, you might want to bring us a copy of this agreement so that we can include it in your estate plan.

4. How else can I help?

It’s very likely that your child spent 11 or more years in school without learning a single thing about managing money. Financial literacy just isn’t taught in schools. This knowledge gap could be a big reason your young adult is struggling.

A BMO Wealth Institute survey found that two-third of parents give money to adult children when a sudden need arises². Does your child need money suddenly because he or she doesn’t know how to budget? Help find that balance between covering current expenses and contributing to savings and investment accounts.

Housing and transport costs can be a shock to recent college leavers. You could help your child negotiate a car lease. You might help a child who’s already chasing after the Joneses by counselling against a rash home purchase that will stretch his or her finances thin.
Introducing your underemployed child to some of your professional connections might lead to a significant career upgrade.
One key connection you should be sure to tap: your financial adviser! We’re always happy to help our clients’ adult children get on their feet. We consider this a service to our clients because we know that the less you’re worried about supporting your children, the more secure your own retirement goals will be.

Sources

¹ https://s1.q4cdn.com/959385532/files/doc_downloads/research/TDA-Financial-Support-Study-2015.pdf

² https://wealth.bmoharris.com/media/resource_pdf/bmowi-bank-of-mom-and-dad.pdf

Empower Yourself by Recognising Your Freedom to Choose

“When we are no longer able to change a situation, we are challenged to change ourselves.”
– Viktor Frank

We may not always be able to control the circumstances of a given situation we find ourselves in, but we always have the freedom to choose how we respond. The choice we make – and how we make it – often determines how well we survive the situation, and if we go on to thrive.
If challenges in your family life, your career, or your finances are making you feel powerless, try approaching the challenge from a new angle.

This simple three-step process can put you back in touch with your freedom to choose how and why you live your life.

1. Consider your reaction.
Take a step back from the problem. Take a breath. Take a walk. Pour yourself a cup of coffee.

By creating some space, you’ll be able to ask yourself, “Why am I reacting the way that I’m reacting? Is there a better perspective I could be taking? Am I letting past experiences influence my reaction for better? For worse?”

When we feel overwhelmed by a challenge, we often fall back on established patterns in our thinking. Often these default reactions are negative. If we’re arguing with our spouse, we might replay past arguments in the back of our heads. Financial difficulty might trigger memories of our parents struggling with money as we were growing up.

Identifying the negative experiences and perspectives that create our immediate reactions to challenges can help us find ways to create more positive and empowering reactions.

2. Consider your purpose.
Instead of allowing the situation to dictate how you’re responding, push back. Refocus how you choose to respond around the goal that you are trying to accomplish.

For example, if your business partner backs out of the new business you’ve been planning to start, that loss of manpower and capital could make you feel defeated and powerless. But the reality is that you are choosing to dwell on negatives that you can’t control.
So, what can you control?

If you’re really committed to starting your new business, you can choose instead to focus on alternative funding sources. You can talk to other friends, family, and colleagues about potential partnerships. You can choose to work on Plan B.

Another example is the investor who feels powerless as market volatility chips away at his nest egg over a quarter. No, you can’t control the natural disaster or political spat that’s giving the market fits right now. But you can choose to focus on your long-term purpose: a secure retirement for you and your family. That positive thinking and big-picture perspective could prevent a costly knee-jerk reaction.

3. Consider your values
One of the best ways to drive negative thinking from our reactions is to focus on the things that matter the most to us. Reconnecting our decision making to our values can lead to solutions that make life more fulfilling.

Work might be the most common source of challenges in our lives. And while no one loves absolutely everything about their job all the time, it’s worth considering how your job affects your sense of freedom. Do those 35 hours per week give you the financial resources to spend your free time doing what you want with the people you love? Are your skills and talents used in ways that make you feel like you’re making positive contributions? Does your employer have a mission bigger than profit that’s important to you?

If your answers are no, no, and no, you can choose to keep dragging yourself out of bed every Monday, resigned to the uninspiring week ahead. Or you can follow your values towards a more empowering choice. Consider a career change. Learn a new skill that will bolster your c.v. or line you up for a better job at your current employer.

If switching careers is really out of the question right now, choose to appreciate the parts of your job that you do well because of your unique skillset. And when you’re not working, make time for the hobbies, interests, and experiences that do fully engage your core values. Who knows? One day these pursuits might lead to exciting new opportunities for you and your family. If you’ve been committed to your values all along, you’ll be ready to make the right choice.

 

How to Have More Fun and Meaning in Retirement

A blank calendar filled with nothing but free time can be every bit as stressful as a packed work week.

That’s the surprising fact that many new retirees confront after a few days of hitting the snooze button and puttering around the house. This is usually when the reality of retirement sets in. This is your life now. What are you going to do with it?

Whatever you want!

The only thing better than sleeping in is jumping out of bed early because you’re energized and excited for the day ahead. This is the kind of active and fulfilling retirement that we love to help our clients prepare for.

Here are some ideas for creating a new retirement schedule that will keep you growing, learning, experiencing new things, and making meaningful connections with your community.

1. Travel.
Taking all those trips you couldn’t squeeze in around work meetings and kids’ football tournaments tops many retirements wish lists. And with good reason. After all that hard work, prudent planning, and disciplined saving, you deserve to treat yourself, do things you never had time for, see places you’ve always wanted to see.

Why not try to be your own travel agent? Planning a few big trips scattered throughout the year can be a fun activity for you and your spouse to do together. And in between those big destination holidays, you can sprinkle in some long weekends visiting the grandkids, and a few separate getaways to give each of you space to pursue your personal passions.

2. Work or volunteer part time.
No, “working in retirement” is not an oxymoron. More and more retirees who can afford to stop working are taking part-time jobs and volunteer positions. This can give your week some welcome structure and provide an outlet for things you’re passionate about.
That non-for-profit job you couldn’t afford when you were raising kids and paying a mortgage? Take it. Do some good in your community and make a little spending money on the side. Put your cultural expertise to work as a guide for an art gallery or museum, or maybe volunteer at a church or charitable organization that’s close to your heart.

3. Upgrade your living situation.
Whether you’re handy and enjoy doing the work or just like picking out new colours, patterns, and fixtures, take care of all those lingering household projects. Your comfort is important, especially as you age. Don’t let minor inconveniences like leaky pipes turn into major problems. Get rid of that lumpy mattress and hard couch you’ve been torturing yourself with for a decade. Map out the garden you’ve always wanted and turn it into a ‘go to’ meeting place for your family and friends.

Of course, that’s assuming you want to “retire in place” at your current residence. A permanent change of scenery can be invigorating as you enter this new phase in your life. Just make sure you talk to us if you see a holiday home in your future. We’ll make sure that we incorporate the move and all the necessary tax, and cost of living adjustments into your financial plan.

4. Get really good at something you love doing.
Been a frustrated weekend golfer your whole life? Sign up for lessons and get that handicap down for good. Or better yet, set up a weekly tee time with a group of retired friends.  No more rushing through meals on your way to and from work and school, so let your inner foodie have the run of the kitchen. Dust off your college French lessons before that dream trip to Paris with an online class. Clear out that back bedroom no one uses any more and make a study. Paint the pictures you’ve always wanted to paint. Finish the novel hiding in the bottom of your desk drawer.

The possibilities for an exciting and fulfilling life in retirement are bound only by your imagination and the financial resources you have available to you. Let us help you take care of the money part so you’re free to focus on the fun.

‘Pretirement’

Half of pensioners plan to work past retirement age

The onwards march of ‘pretirement’ – where people scale back on work or slow their retirement plans down rather than giving up entirely – is continuing, according to new research [1].

A recent study found half (50%) of those retiring during 2018 are considering working past State Pension age. This is the sixth consecutive year where half of people retiring would be happy to keep working if it meant guaranteeing a higher retirement income.

Cost of day-to-day living concerns

More than a quarter (26%) of those planning to delay their retirement would like to reduce their hours and go part-time with their current employer, one in seven (14%) would like to continue full-time in their current role. An entrepreneurial fifth (19%) would try to earn a living from a hobby or start their own business.

The research shows that many people expect their retirement to last an average of 20 years. Around one in 12 (8%) of those scheduled to retire this year have postponed their plans because they cannot afford to retire. Nearly half (47%) of those who cannot afford to retire put this down to the cost of day-to-day living which means their retirement income won’t be sufficient.

Keeping mind and body active and healthy

The research also found that the decision to put of retirement isn’t always a financial one. Over half (54%) of those surveyed who are already,

Averting a later-life financial crisis

More retirees drawing pensions without LPA’s

People are generally living longer these days. Increasingly, more people are living well into their 80s and 90s – and some even longer. This may mean you have a long time to budget for. That’s why it is very important to consider all your options carefully and think about what will matter to you in retirement.

As you will probably be aware from our previous blogs, the Government introduced ‘Pension Freedoms’ in April 2015, which means that you can now access your pension in more ways than ever before. Therefore, it’s important that you take time to think carefully before you decide what to do with your money.

Later-life financial crisis

According to a recently published report [1], nearly 80% of retirees who take advantage of the new pension rules to manage their retirement savings will face a potential ‘later-life financial crisis’ as they have not set up a Lasting Power of Attorney (LPA).

There are two types of LPA. These are the Health and Welfare Lasting Power of Attorney, and the Property and Financial Affairs Lasting Power of Attorney.

The same research found that 345,265 pensioners accessing their pension pots in this way have not yet given a family member or friend the legal authority to make decisions on their behalf if they were no longer able to do so.

Responsibility of managing income

The analysis highlights the scale of an issue that has emerged since the 2015 changes when the British government abandoned the requirement to buy an annuity at retirement. It has come to light that twice as many people are now opting for pension drawdown over annuities. In effect, this puts the responsibility of managing income in retirement onto the individual.

Therefore, registering an LPA has become even more important since the pension reforms. Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases. Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities, hence, the time to set up an LPA is well before you need it.

Potentially creating problems

With more and more people moving into drawdown, this is potentially creating problems that could leave thousands of people facing a possible later-life financial crisis. It is vital to plan for a time when managing your pension might become hard, or even impossible, and obtaining professional financial advice is one of the best ways to do this.

The Alzheimer’s Society has discovered that there are currently 850,000 people in the UK living with dementia and this could increase to over 1 million by 2025. Yet the report revealed that only 21% of retirees who have accessed funds under the new freedoms have registered an LPA.

Discussions with your family or others

A LPA can be a very important part of planning for a time when a person will not be able to make certain decisions for themselves. It allows you to choose someone you trust to make those decisions in your best interests. This can be reassuring and making an LPA can start discussions with your family or others about what you want to happen in the future.

The stigma around the LPA, as with dementia, is compounded by its links to mental capacity. Some people are reluctant to consider a future where they may not be able to make their own decisions due to the connotations they associate with this. In cases where LPAs are not in place, assets and equity may be lost, or those in a vulnerable position may be forced to make decisions they are no longer able to make.

Do you need help? Give us a call

Whatever your plans for the future, we are here to help you take the next step and if you don’t have your own Solicitor, we are happy to introduce you to a Solicitor who can help you with these requirements.

 

Source data:

[1] The study for Zurich UK is based on a YouGov survey of a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced in April 2015. The survey was carried out between 14 December 2017 and 24 January 2018.

FCA Data Bulletin (issue 12) shows 345,265 pots moved into income drawdown between October 2015 and October 2017. Assuming the number of people moving into drawdown continued at a similar rate from November 2017 to April 2018, this would equate to a further 86,316 people in drawdown. 345,265 + 86,316 = 431,581 people.

345,265 / 2 years of drawdown data = 172,632 x 10 years = 1,726,325 people.

Warning:

The information noted above is for general information only and is not intended as personal advice. Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

Countdown has commenced ….. Are you on track to a financially secure retirement future?

The very concept of retirement is changing and when you are at the point of retiring, the new ‘pension freedoms’ have opened up all sorts of alternative strategies to taking your pension benefits.

The way we can access our pension is now a lot more flexible and it’s no secret that in the UK we’re living longer than ever before.   With a longer retirement and more choice over how you can take your pension, planning ahead will help ensure you’re on track to a financially secure future.

Although retirement can still seem a while away, begin to consider what you want your life to be like when you get there.  Our timeline will help you get started.

Ten years before you plan to retire

Here are some things to think about as you start to build your plan:

· The age you’d like to retire
· How much you’ll likely have in your pension fund/s, and the income you’ll need when you retire
· Any savings, investments or other assets that you could add to your retirement income
· How your living expenses could change in the future
· How you’ll pay for any travel, hobbies or further education once you’ve retired
· An emergency savings fund, to help with any unexpected costs like car or home repairs
· Paying off any debts before you retire
· How you’ll support your dependants once you’ve retired
· Putting money aside to pay for long-term care for you, your partner or other dependants

Don’t forget that your spending habits are likely to change in retirement. For example, your commute costs are likely to be lower, but more time at home may mean your utility bills go up.

Five years before you plan to retire

Now is the time to make sure your goals are on track:

· Decide the age you’re likely to retire
· Consider phasing your retirement and continuing to work part-time for your current or a new employer
· Consider boosting your pension by increasing your contributions and/or adding lump sum payments (take advantage of any unused pension tax allowance)
· Trace any lost pensions through the Pension Tracing Service
· Ask for up-to-date statements for all your pensions. You can also get a forecast of your State Pension at www.gov.uk
· Look over your investments and savings to see if they still meet your attitude to risk as you get closer to retirement
· Think about whether you’d like to take an income from your pension or whether you want a pot of cash, including any tax-free allowance, to do something different in retirement
· Discuss your options with a professional financial adviser
· Write a Will or review your existing Will – and plan what will happen to your pension and estate if you die, plus any tax implications.

Six months to go

It’s time to give yourself a retirement readiness check-up:

· Review your pension statements to get an accurate picture of what your funds are worth
· Make an appointment with your professional financial adviser for advice on the best retirement options for you
· Determine the best option/s for taking your pension savings to meet your financial and lifestyle needs
· Tell your pension providers you’re planning to retire, so that they can send you any and all information you need in plenty of time
· Update your beneficiary information
· Set a date for a pre-retirement meeting with your employer
· Let the HM Revenue & Customs (HMRC) know you’re retiring because your change of status will affect your tax code
· Budget for changes in your day-to-day spending after you retire

Twelve to eight weeks before

It’s down to business now – you’re just outside of your selected retirement date:

· Speak with a professional financial adviser to consider your options and retirement plans
· Ask your provider about the ways you can access your pension based on the options available
· You should receive a letter four months before you reach State Pension Age, telling you how to claim your State Pension. If you haven’t received this by three months before, here’s how to claim this
· Look into any entitlements from the Government over and above any State Pension you may get, as these could make a real difference to your living costs

Eight to two weeks before

The final countdown! It’s time to make sure you have all the information you need to help make a decision:

· Consider any retirement quotes that your provider may have sent you
· Remember, if you want to use your pension to provide an income, you should shop around the different providers to get the best income you can. If you and/or your partner have a health and/or lifestyle condition, then you could get an even higher income as different providers also cover different conditions
· You’ll also need to apply to your provider/s if you’re moving pensions from different sources
· There you have it – happy retiring!

We can offer the right help

Whether you’re new to pensions, or whether your retirement is just a few years away and you want professional financial advice, we can offer the right help for you to make the most of your money now and in the future. To find out more about your options, please contact us.

 

Warning – The information noted above is for general information only and is not intended as personal advice.  Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

ISA rules and Inheritance Tax

Families set to pay millions in unnecessary tax

There’s a fundamental lack of awareness and understanding around Inheritance Tax, especially when it comes to how Individual Savings Accounts (ISAs) are treated after death. Given that some people have been able to amass over a million pounds in their ISAs, it’s an area where lack of knowledge could prove costly.

Over half (51%) of over-45s do not know that ISAs are liable for Inheritance Tax, leaving families across the UK set to pay millions in unnecessary taxes according to findings from an annual Inheritance Tax monitor survey[1].

Gifted to a partner 

As ISAs can only be gifted to a partner and not children without incurring tax, the Government will ultimately be a major beneficiary of money currently residing in Cash ISAs and Stocks & Shares ISAs. In the last Budget, HM Treasury predicted it would raise £5.3 billion in the 2017/18 tax year in Inheritance Tax, which will eventually increase to £6.5 billion by 2022 to 2023.

The research also revealed over three quarters (77%) think the UK’s Inheritance Tax rules are too complicated. Yet despite this, only a third (33%) have sought professional financial advice on Inheritance Tax planning. Of those who did seek advice, over two fifths (42%) spoke to a professional financial advise

Rules regarding inheritance

Some people could inherit less than they expected because they aren’t aware or make assumptions about the rules regarding inheritance. In particular, the rules governing the gifting of ISAs and valuable estates mean that many may be faced with a higher than expected Inheritance Tax bill.

ISAs remain the ‘go to’ financial product for many people as they look to build up a nest egg in a tax-efficient way during their lifetime. But with such a large number of older people investing into them, there is a worrying lack of awareness that ISAs are subject to a 40% Inheritance Tax charge. ISAs are a great tax-efficient investment in your lifetime, but more people need to be thinking about how to pass on their hard earned money to their loved ones when they die.  

Securing and protecting your wealth

Early preparation is the key to success here. Taking advantage of methods to secure and protect your wealth will ensure that more wealth can be passed onto the next generation – to find out more, please contact us.

Source data:

[1] Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual Inheritance Tax threshold (nil-rate band) of £325,000. Carried out in October 2017. 

Article published by Goldmine Media Ltd.  For further information, please see our latest edition of Smart Money