Choices, Choices: The Importance of Financial Planning for Retirement

With the state pension age forecast to rise to 68 over the next 20 years, the rush to protect our futures is on.

Life expectancy may have stuttered over the past two years, sitting at an average of 85 for people over 65, but as populations continue to grow and live for longer than ever, it has never been more important to make correct and informed choices about how our assets will last the course.

Here, Tony Duckworth, MD and Chartered Financial Planner at Cowens Financial Architects, discusses how we can safeguard our precious pension pots through sound financial planning.

It’s no secret that state pensions aren’t enough to cover most people’s plans for their leisurely retirement years. The push on the need for private savings from the government and the introduction of the compulsory work-place pension in light of these ever-increasing age stats have further heightened the pressure on working people to get their finances in order. The good news is, it’s never too late to start putting the wheels in motion to build a portfolio of assets designed to meet your future financial needs, while also ensuring loved ones are protected should the worst happen.

The introduction of Pension Freedom in April 2015 means that anyone over the age of 55 can now withdraw their hard-earned private pot as a lump sum, paying no tax on the first 25%. This move, although liberating for many soon-to-be retirees, has opened a labyrinth of options and potentially wrong decisions.

Recent research from the FCA (Financial Conduct Authority) has found that around 100,000 over 55s withdraw money from their pensions every year without seeking financial advice[1], something the organisation is campaigning hard to change. It’s difficult to imagine that this many people have got to this point without any sound advice.

Recent research from the FCA (Financial Conduct Authority) has found that around 100,000 over 55s withdraw money from their pensions every year without seeking financial advice.

Having a comprehensive financial plan with a clear strategy to deliver to your retirement needs is key to understanding the best way to maximise your pension freedom. A Ferrari may seem a fantastic idea within the first week of your new-found retired lifestyle, but in many cases, your pension pot will have to last for almost as many years as it took to save it and a purchase like this may put too much strain on your pot to meet your needs for the remainder of your lifetime.

Care must also be taken when looking at annuities, although well-advertised as a sensible alternative to withdrawing lump sums of your pension, exchanging your pension pot for a monthly income is irreversible, holds little flexibility and gives little scope to pass on benefits to future generations. With no chance of growth, an annuity won’t earn you any interest and restricts your ability to invest for the future. In fact, since pension freedom was introduced, sales of annuities have tumbled by 80% according to the ABI[2] (Association of British Insurers).

The easiest way to protect your funds and cut through the confusion is to seek expert financial advice – it’s the best way to understand when you can retire with confidence, while also ensuring your assets are structured suitably and invested in a risk-managed strategy designed to maximise potential returns. An adviser will spend time discussing what is important to you in life, your goals and aspirations for the future, and learn about the important things you want to plan for. Creating a clear vision for your retirement is the most solid route to understanding what is possible with the money you’ve saved.

Seeking expert help both throughout our working lives and as we hit retirement age is a sure way to take the dreaded stress and worry off our shoulders when we hit our 60s.

There is hope when it comes to the increasing retirement age – a financial adviser may be able to plug the gap between when you want to retire and when your state pension kicks in, structuring your assets and income to minimise tax payments and help your money go further. In the best case, retirement may be closer than you imagined!

When planning for our futures, ‘what ifs’ still need to be taken seriously and a rainy-day fund is essential. With the NHS in the UK in turmoil and people living way into their 80s and 90s – the cost of private health care, medication, and elderly long-term care must be accounted for within a financial plan.

In 2017/18, Paying For Care found that the average cost of a residential care home in the UK was £32,344 a year, rising to over £44,512 a year when nursing care was included[3]. Just one hour of daily care can total up to £6,700 per year in some parts of the country. State funding rules are constantly changing – currently, if your assets come to a total of £23,250 or more by the time you or your partner need this type of care, you will be expected to cover all care costs yourself, which could leave you short if the right measures aren’t in place. A financial expert can help with things such as equity release, payment schemes, and insurance policies to guarantee your cash flow and take some of the burden if care was needed.

Although financial planning and retirement planning are essentially two separate entities, they must go hand in hand in order to provide the lifestyle you want. Getting down into the granular detail of your finances as you approach retirement is the best way to assess what actions are needed to maximise your assets to last. Seeking expert help both throughout our working lives and as we hit retirement age is a sure way to take the dreaded stress and worry off our shoulders when we hit our 60s.

As we strive to save, invest and grow our assets over the course of our working lives, the transition to withdrawing and living off those funds may seem a terrifying concept. But through solid advice and good decision making, you can guarantee financial freedom throughout your golden years.

 

About Cowens Financial Architects

Cowens Financial Architects is a trading name of R A Cowen and Partners Financial Services Ltd, part of Cowens Group. The team delivers a range of financial planning services, focused on helping people to make the right financial decisions, including financial planning, investment advice, retirement planning, and inheritance tax planning.

 In addition to the financial planning provided by Cowens Financial Architects, the business also provides corporate financial planning through its brand, Cowens Employee Benefits Ltd.

R A Cowen & Partners Financial Services Ltd. Registered office: Inbro House, Commercial Gate, Mansfield NG18 1EU. Authorised and regulated by the Financial Conduct Authority.

 

[1] https://www.moneysavingexpert.com/news/2019/01/new-rules-to-make-pensions-clearer/

[2] https://www.iress.com/uk/resources/insight-research/retirement-report-retirement-income-and-annuity-perspectives/

[3] https://www.payingforcare.org/how-much-does-care-cost/

3 Comments
  1. Derek McDoogle says

    I like how you mentioned that the easiest way to protect your funds and cut through the confusion is to seek expert financial advice. My wife and I would like to enjoy and spend time traveling when we retired. Thanks for the information about how financial planning and retirement planning must go hand in hand in order to provide the lifestyle you want.

  2. David Johnson says

    I thought it was really interesting how you mention that getting professional help can stave off stress. Some of my friends are nearing retirement age and I’m not sure how they’re doing financially. I’ll have to look more into retirement planning consultations.

  3. Hi Admin, I read this article this is very informative. please keep it up. You share a brief detail about Financial planning. I think that you ought to publish more on this subject matter, it might not be a taboo matter but generally people don’t discuss these issues. To the next! Kind regards!

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