W
L
TIME TO REVIEW YOUR RETIREMENT PLANS
WITH A FINANCIAL CHECK-UP?
by Sam Hulson of First Equitable
If you are planning to retire within the next five years, it’s time to get into
the mindset of considering the practicalities of fulfilling your desired
lifestyle and making plans. While you should think about retirement
planning as early as possible, the five years leading up to retirement are
most critical; not least from an ‘investment risk’ perspective, as any sharp
falls close to retirement could impact negatively on future plans – such
as the amount of tax-free cash you can withdraw or even how long your
money might last.
Request up-to-date forecasts
If your approach to retirement matters has historically been to pay only a
cursory glance to your pensions - usually on receipt of your annual statement
- then now is a time when you’ll need to obtain up-to-date pension forecasts
and obtain professional financial advice to make sure your retirement plans
are on track.
Contact current and previous pension trustees to request up- to-date
forecasts. If you’ve lost details of a pension scheme and need help, the
Pension Tracing Service (0800 731 0193) may be able to assist you. You
should also find out what your likely State Pension entitlement would be –
you can do this by completing a BR19 form or by visiting www.direct.gov.uk.
Consider consolidating existing pensions
If you have a number of occupational and/or personal pensions, you will
need to find out where they are invested and how they have performed. Also
check if there are any valuable guarantees built into the contracts. It may
make sense to consolidate existing pensions, making it easier for you to keep
track of everything and reduce the amount of correspondence you receive.
With investments in general, it is important to review your strategy before
you move into retirement. You don’t need to suddenly become an ultra-
conservative investor – you still want your portfolio to grow over the next
few decades. However equally, should the investment markets make a
correction, you may want to limit your downside.
The most important point is to make sure you have a genuine understanding
of the level of risk you are taking, and the likely range of positive and negative
outcomes associated with that level of risk. It is not uncommon for clients to
arrive at or close to retirement having not reviewed their investment risk and
capacity for loss for some 15-20 years or more!
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Don’t put off confronting the truth
If your investments don’t look on course to give you the income you’d hoped
for in retirement, don’t put off confronting the truth. You may need to revise
your projected living costs. Alternatively, there’s still time to change your
investments, and you could also cut back on spending while you are still
earning to generate more savings. Your income can be used in other ways
besides topping up your savings as you prepare for retirement. Clearing
debts, including your mortgage, should be a priority before you retire.
Whatever you owe on credit cards and loans, focus on paying off the debt
that charges the most interest first. Debt will be the biggest burden once you
do not have a regular working income.
Obtain a cash flow analysis report
A great way to really understand your current position and projected
affordability, both approaching and after retirement, is to obtain a cash flow
analysis report. Cash flow modelling, in its simplest form, is the process of
assessing your current and forecasted wealth, along with inflows (income)
and outflows (expenditure), to enable a picture to be created of your finances
both now and in the future. Cash flow modelling allows you to reflect on
your current financial position relative to your preferred position and future
aspirations. A cash flow model will provide a detailed picture of your assets,
investments, debts, income and expenditure. The model will be projected
forward, year by year, using assumed rates of growth, income, inflation,
and interest rates. The model can also be ‘stress tested’ to show the potential
impact of market falls or poor investment performance and can be a useful
way of understanding your capacity for investment loss.
Speak to an expert
If you plan to retire within the next five years, we can ensure you take the
right steps today to help ensure that you have what you need to enjoy a
comfortable retirement lifestyle.
As pensions and retirement planning specialists, we have many years of
experience helping our clients successfully achieve their goals and objectives.
If you would like to receive professional advice, in a language you can easily
understand, then please give us a call or complete an enquiry form via our
website.
You can also email any questions to me at: sam.hulson@first-equitable.com