Monthly Archives: September 2019

The Purpose of Money is NOT Just to Make More of It

Imagine that you’re living in a tent on an open plain.

One day you plant a tree. For the next 40 years, you water it. You protect it from harsh weather and animals. You never pick its fruit. You don’t climb it for fun. You don’t take a break and rest in its shade. You don’t even cut down some branches to build a house. You never go anywhere or do anything else because you’re focused solely on growing that tree bigger and bigger.

Finally, one day, just after your 65th birthday, the tree stops growing.

You look up at its enormous trunk and wide spread of branches and say to yourself …

“What was that for?”

Many of us treat our financial planning in a similar fashion. We become so caught up in the work that goes into “growing the tree” that we never think about harvesting the fruit or timber to make a better life for ourselves. As long as our tree keeps getting bigger, we keep putting in the work of growing it, even if that work doesn’t engage our interests or put our unique talents to their highest purposes.

Then retirement comes along.

Faced with the prospect of no longer working, some soon-to-be-retirees feel lost. Their sense of purpose was so connected to working hard to make more money that they never stopped to ask themselves what that next pound was really for.

Some defer retirement as long as they physically can to keep chasing after more money that they don’t really need and will never actually spend.

Others become so concerned about running out of money that they live too conservatively and never enjoy their retirement.

And others potter aimlessly around the house re-arranging the furniture for the 10th time.

A better sense of purpose.

There is a purpose to having money and growing your wealth. But what money can’t do is create purpose in and of itself.

Eventually, your tree is going to stop growing. You’ll be able to live comfortably off the money you’ve saved and the income that your investments will continue to generate. After a lifetime of working hard and following your financial plan, your return on investment will be financial security in retirement.

That’s when it’s time to stop worrying about the tree and start harvesting.

That’s when it’s time to stop focusing on your return on investment and start enjoying a better Return on Life.

But here’s the thing—the earlier you’re able to make this shift into a Return On Life mindset, the sooner you’ll be able to live the best life possible with the money you have. Don’t wait until you’re 65 to start harvesting that tree and enjoying life. You can trim that tree a bit each year, enjoy life today, while still growing it for the future.

Enjoying life along the way will make your eventual transition to retirement even easier. Instead of struggling to replace work with leisure, you’ll be ready to pour even more of your time and energy into the activities that really matter to you.

Start by asking yourself, “What is my money really for?”

Is it for going on dream holidays with your spouse? Is it for taking classes that enrich your mind and body? A second house for weekend getaways? As much golf or tennis as you can squeeze into a day? The freedom to volunteer your time and professional expertise at an organisation that’s making your community better? Finishing a major house renovation, you’ve been putting off? Seed money to grow your own business?

Your life will take on a brilliant luster when you start to use your means in a meaningful way. Let’s talk about how we can help you find that meaning and put your live at the centre of the financial planning process.


The information note above is not intended as advice and should not be relied upon as such. We therefore accept no liability or responsibility arising from any reliance placed on such information to the fullest extent permissible by law.


Will you spend less in Retirement?

So … you’re thinking about retiring. To prepare, you’ve been adding to your personal pension plan or employers pension scheme, getting an estimate of your state pension scheme benefits and topping up your ISA.

This is all to provide you with an income when you stop working. But what about planning for the other end of the equation: What should you expect to spend if you want to at least maintain, if not improve your standard of living in retirement?

Since almost everyone wants to retire someday, there’s a bounty of familiar adages, rules of thumb and popular perceptions on what it’s going to take. One of the most common ones I hear is this: I probably won’t need to spend as much once I retire.

Lower income taxes, shorter commutes, homemade meals, etc. At one point or another, you’ve probably been told there are lots of ways to live well for less in retirement. There may be. But have you actually run the numbers based on your own expectations? If you’re simply assuming a bounty of savings will fall into place, just because, I’m afraid you’ve got more planning to do. Let’s break the process into three digestible bites.

  1.  Who Are You, Really?

As I mentioned, there are plenty of ways many people can lower their cost of living in retirement. But retirement isn’t a magic wand. It won’t change who you are, nor will one size fit all.

So, first things first. Take some time to think through which potential cost savings actually align with your personal preferences. Out of all the costs you could reduce …

  1. Which are the costs you’d be happy to cut? Income taxes, for example. Who would miss those?
  2. Which are the cost cuts that wouldn’t bother you much, if at all? Little things can add up, especially if you won’t miss them anyway.
  3. Which are the cuts you could make, but when push comes to shove, you’d rather not? You may want to list and prioritize these, so you can decide where to draw the line.
  4. Which potential cost savings aren’t even realistic for you? Be honest with yourself about what you can and cannot do without.

In other words, be sure to make your spending planning about you … not some fantasy “you” who you wish you could be. Potential cost savings in retirement may look great on paper. But think through how you’ll really feel about them. If you’re a couple, that goes for both of you! I’ve seen too many families become overly optimistic about how much of their spending they’ll be willing to jettison in retirement. That’s no good if you find yourself neither up to the challenge or awfully unhappy with the results.

  1. What Are Your Numbers?

Once you’ve got a sense of the actual lifestyle you’d like to achieve, it’s time to get a solid grip on the numbers involved. What expenses are really going to change, and which will probably remain about the same? Are you supporting your kids, your parents, or both? Have you paid off your mortgage? What other expenses might show up, or go away? Again, this involves a healthy dose of realism.

For example, what if one of your grand plans is to downsize from your gigantic, family-sized home into a place more fitting for your retirement lifestyle? If you’re hoping this will also free up a big chunk of change to fund your new lifestyle, be sure to carefully quantify the costs involved. There can be costs to prepare your property for sale, estate agent commissions, legal fees and moving expenses. You’ll also need to buy or lease your next house, where you’ll probably have a new wish list of upgrades or renovations you’d like to make and stamp duty to pay.

You may still want to downsize even if it’s not going to be the screaming deal you were hoping for, but it’s a good idea to proceed with your financial eyes wide open.

Without going into painful detail, sensible tax planning may warrant intentionally incurring extra taxable income in early retirement, with an eye toward paying less income tax overall. This is especially the case if you are likely to fall foul of the Lifetime Allowance Tax Charge at age 75 in respect of your pension benefits.

In other words: That huge tax cut you were anticipating? It may end up being less than you expected.

  1.  Has Anything Changed?

This brings me to my final point. Retirement planning isn’t a single event; it’s an ongoing process. If all goes well, you may be retired for decades. The standard of living you’re planning for in early retirement is unlikely to be the same one you’ll prepare for later on.

Initially, you may want to travel, volunteer, improve your golf handicap, and spend more time with the grandkids. You may be called on to take care of your parents. You may want or need to keep working off and on.

Over time, you may become less active and as a result your expenditure may fall.

For all these reasons and more – the more realistic you are about your true costs in retirement, the more likely you’ll be able to maintain your lifestyle. And, the more personalised numbers you factor into the equation, the more realistic you can be. For that, we employ our financial modelling tools and use these to illustrate if you have enough and what the outcomes could be given future markets falls and lifetime events.


Lifetime allowance – Breach may impact on more than a million workers!

An estimated 1.25 million people are set to breach the current lifetime allowance (LTA) limit of £1.055 million for pension tax relief over the course of their working life, according to new research published[1].

The LTA is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. It has been cut three times since 2010, and this research estimates that around 290,000 workers already have pension rights above the limit, and well over a million more people are at risk of breaching it by the time they retire.

Facing a tax charge of up to 55% on pension savings

Those who exceed the LTA could face a tax charge of up to 55% of their pension savings above this level at the time of testing. Around 290,000 non-retired people have already built up pension rights in excess of the LTA. Fewer than half of these are thought to have applied for ‘protection’ against past reductions in the LTA and so could face significant tax bills when they draw their pension. Worryingly, many may be unaware of this.

Almost half of these people who are already over the LTA are continuing to add to their pension wealth, thereby storing up an even bigger tax charge with every passing year and amongst non-retired people who are not currently over the LTA, an estimated 1.25 million can expect to breach the LTA by the time they retire.

Groups likely to breach the lifetime allowance

The two main groups likely to breach the LTA are relatively senior public sector workers with long service, whose Defined Benefit pension rights will exceed the LTA. This is a specific problem in the NHS where it has been indicated that up to 100000 doctors and consultants may consider leaving early if this is not rectified. This is something that concerns the current government and hopefully there may be plans afoot address the situation. In addition, it impacts on to relatively well paid workers in a Defined Contribution pension arrangement where their employer makes a generous contribution into their pension pot.

Highest earners may be less affected by the Lifetime Cap

Typical salary levels of those affected are in the range £60,000–£90,000 per year. But ironically, the very highest earners may be less affected by the Lifetime Cap because they are now heavily limited by the amount they can put into a pension each year.

The data suggests that only a couple of thousand people exceeded the LTA in the latest year for which figures are available (2016/17). The number likely to face a tax charge could therefore increase more than a hundredfold, purely based on those who have yet to retire but who have already exceeded the LTA.

Workers who would not regard themselves as ‘rich

The research finds that one of the reasons why so many people will exceed the LTA is that current policy is simply to increase it each year in line with price inflation (as measured by the CPI).

By contrast, wages will tend to grow faster than inflation, and the money invested in pension pots should grow faster than inflation over the long term. This means that the LTA will ‘bite’ progressively more severely over time and will subject hundreds of thousands of workers who would not regard themselves as ‘rich.’

Need help with your options for retirement?

Wherever you are in your retirement journey, we’re here to support you, whether it’s starting a pension, saving more into your plan or helping with your options for retirement. For more information, please contact us. 

Source data:

[1] Research conducted for Royal London is based on detailed analysis of data on more than 7,700 workers from Wave 1 and Wave 5 of the ‘Wealth and Assets Survey’ March 2019.