Six reasons to write a will even if you think you have nothing worth inheriting
61% of UK adults do not have a will in place, according to Which?. A fifth of those say they have not written a will as they have nothing worth passing on.
However, a will does so much more than just pass on material and financial assets. It is also used to help let those left behind know your wishes and could be the best way to ensure that they are followed, after you die, these can include:
1. Who oversees your estate
You need to choose who will be the executor(s) of your estate. They will take charge of it and make decisions on your behalf. You can appoint up to four executors but, as they need to make decisions on a joint basis, fewer may be more practical. Executors must be over the age of 18 and it is possible for them to also be beneficiaries of the will.
The executor(s) of your estate will be responsible for following the requests made in your will to the best of their ability.
2. Who cares for your dependents
If you have children or are responsible for looking after vulnerable adults, you can include instructions for their care in your will. This may include who will look after them and where they will live. It is obviously important to involve any potential carers in this decision, as they will need to be prepared for the responsibility and agree to it.
As an aside, nominating someone to look after dependents is only half the job. Making sure that those people have the financial resources to provide the level of care. Therefore, making a will is a good time to make sure your Life Insurance and financial protections are sufficient, and trusts are set up to ensure that the capital paid on death is put in the right hands at the right time.
Aside from human dependents, you can also include instructions for the care of pets in your will. But again, make sure the person or people you nominate are willing to take on the responsibility.
3. What happens to sentimental items
Even if you think you don't have anything of financial value to pass on, you shouldn't underestimate the importance of sentimentality. If you have belongings which you want to be passed on to specific people, you can include this in your will. You may even want to add instructions for how you want your belongings to be passed on in the future. Though there is no guarantee that they will be followed.
4. Where your money goes
Your estate may not be worth anything right now, but life is quite unpredictable and there is no way of knowing how much will be left when you die. It's unlikely to happen, but many of us have heard the story about a man who hits the jackpot, only to pass away 24 hours later. Once your estate has been settled, i.e. any costs have been taken out of the money you leave behind, there may be some left, and you will need to leave instructions as to where it goes.
5. Whether you make a charitable donation
You may decide that any money left in your estate once it has been settled is to go to charity. Including it in your will is the best way to continue supporting a cause you are passionate about.
Charitable donations are immediately outside of your estate for Inheritance Tax (IHT) purposes. So, if you had suddenly come into enough money to put you over the threshold, a donation could protect your loved ones from a large tax bill.
6. What happens to you
It's not a cheerful thought, but some may find comfort in deciding what will happen to their body when they die. You can also include specific instructions for your funeral arrangements, such as music you would like to be played, the clothes you wear and who will be your pallbearers.
What happens if you die without a will in place?
If you don't have a will, or your current will is not valid when you die, your belongings and estate will be left intestate. That means that the laws of intestacy will determine how your assets are distributed, who cares for your dependents and what happens to any belongings you have.
Of course, there's a good chance that those decisions will not be in line with your wishes. It will also mean that your loved ones will be subjected to a much longer, more stressful process than if they have a will detailing your wishes available.
What should you do now?
Six things:
- See if you could be missing out on other ways to pass money onto loved ones, this may include, Death in Service benefits at work or your pension provisions.
- Write a will. If you're not sure where to start, get in touch with us for help or contact your solicitor. Alternatively, see if Will Aid is for you.
- Talk to your loved ones about your wishes and any responsibilities you wish to pass onto them.
- When it's written, make sure your will is kept in an accessible place and tell people where it is. If possible, try to make sure any important documents that the executor of your estate will need, are with it, that includes details of your accounts, insurance documents and your identification, such as passport and birth certificate.
- Pass the message on to your family and friends and encourage your loved ones to be equally as prepared.
- If you already have a will in place, you're not done yet. You need to make sure that it is up to date and valid.
It is recommended that you review your will regularly and at major milestones, such as:
- If you get married
- If you get divorced
- If a new baby joins the family
- If you receive a financial gift or inheritance
- If your circumstances change
- If you want to change your beneficiaries
It is often overlooked that milestones such as getting married can invalidate a will, and other changes may mean that the decisions you made previously no longer reflect your priorities, so maintaining your will can be just as important as writing it in the first place.
For more information and help with writing or updating your will, get in touch.
The 'pocket money economy': How an income in early life can increase your children's financial skills
Could the way you give your children pocket money improve their money-handling skills and better prepare them for the challenges of adult life?
It could certainly help them to develop strong saving habits, with research from Santander showing that 84% of children who receive pocket money prefer to save it for the future.
But, how can you help them to make sure that they are saving in the best way?
There are two key factors to effective childhood savings:
- The types of account used
- The age and aims of the child
There are a wide variety of saving accounts for under-18s, but it is the way they are used which will determine how much your child benefits from them. Some accounts have great advantages, such as tax relief, but come with age and deposit restrictions. That means that you will need to create a strategy which makes use of them at the right time in your child's life.
Saving accounts for children
The accounts available for children's savings include:
- Child Trust Fund / Junior ISA: If your child was born between September 2002 and January 2011, they may have qualified for a Child Trust Fund. This is a long-term savings account which offers the opportunity for under-18s to deposit up to £4,260 each year, tax-efficiently. Parents and grandparents can contribute to this.Child Trust Funds are no longer available but those children who had them can continue to save in their account until they turn 18. However, those born after January 2011, when the scheme was cancelled, will have to turn to a Junior ISA (Individual Savings Account).Junior ISAs offer similar benefits, with an annual deposit limit of £4,260.
- Regular Saving Accounts: These require a minimum deposit each month and often come with limitations on withdrawals. However, these accounts may offer more competitive interest rates to encourage long-term savings.
- Instant Access Accounts: A more flexible option, with the ability to make withdrawals without incurring penalties or facing limitations. These accounts are likely to have lower interest rates than Regular Savings Accounts.
- Help to Buy ISA: A government-backed savings account which is designed for first-time buyers to save toward their deposit. This account is available from the age of 16 and offers a 25% bonus on your child's annual contributions. However, there are limits as to how much can be put into the account each month. During the first month, it is possible to put up to £1,200 into the account. After this, a monthly limit of £200 applies.
Help to Buy ISAs are like Lifetime ISAs, which are available for over-18s. It is possible to open a Lifetime ISA and transfer any Help to Buy ISA savings in, without affecting the annual deposit limit.
Why encourage children to save?
The earlier you begin to teach children about money, the better their understanding of it will be as they grow up. Unfortunately, the financial education provided by schools is lacking, or non-existent and our kids are not leaving school as financially savvy as perhaps we would hope. Research from The Halifax shows some worrying trends among children aged eight to 15, including:
- Believing that a loaf of bread costs an average of £15, with a pint of milk at £17
- Estimating the average income for a teacher is £110,000; £87,000 more than the actual starting salary
- Expecting to retire at 56, 12 years prior to their current projected State Pension Age, which could be later by the time they reach retirement
Of course, we can't expect children and young teens to understand everything about money and managing a budget, but it is never too early to start instilling some valuable life lessons - and it doesn't have to be boring, either!
Making saving interesting
If your child is still of an age where they want to do everything with you, make the most of the opportunity to involve them in the household budgeting or have them assist with the weekly shop. This will help them to see how much adults really spend on bills and food and to understand the financial demands they will face in later life.
Saving is always easier when there's an end goal. Start with something which will take a relatively short amount of time and have your child calculate how much they will need to save each week/month to afford it, then work with them each week to show them their progress toward their goal. The goal can then grow gradually, as they get older, and is likely to teach them both how savings work, and give them a frame of reference for saving for bigger things; which will eventually include a housing deposit and retirement.
It is also important for children to understand the practical side of saving; this includes the options available to them and learning how interest rates work, in terms of both saving and borrowing.
For more information and help with introducing your children to the world of saving, why not bring them to your next appointment with us?
How making the wrong borrowing decisions can affect mental health
Common mental health issues, such as anxiety and depression, affect one in six UK adults. In addition, 35-50% of those with severe mental health problems are untreated. (Source: Mental Health Foundation)
People who suffer from mental health problems are 1.5 times more likely to turn to family and friends for loans, than banks and building societies, according to a new report from Money and Mental Health. But, what is the link and is informal borrowing more likely to lead to financial problems?
You might not feel like this affects you directly, but it might affect someone you know, or maybe you are the person they are asking for money from. Remember, mental health issues can affect anyone, your kids, your parents, even your friends, so knowing how to help those who need it could come in useful.
What is the difference between informal and formal borrowing?
While formal borrowing is carried out via a bank or building society, informal borrowing is the act of taking loans from unofficial sources, such as friends, family members and colleagues.
Formal borrowing has the advantages of being regulated, with terms and conditions stating what will happen if the borrower fails to make repayments as outlined in the agreement. However, informal borrowing includes asking friends, family and even strangers for money on an unsecured basis. The type of informal borrowing varies wildly, from asking parents for a small loan, to turning to loan sharks.
Who is most likely to lend informally?
Perhaps the most well-known informal lender is the bank of mum and dad. It can be hard for parents to turn family away when they ask for help, and that has led to parents and grandparents providing almost twice as many (88%) informal loans as close friends (49%).
'Other private lenders' make up 16% of informal borrowing, which could include anyone from neighbours to loan sharks, with one being evidently more dangerous to people facing mental health problems, than others.
Why turn to informal lenders?
Formal lenders will check the history of the borrower, who may fear that past indiscretions will make them ineligible for the help they need, making informal borrowing much more appealing. On top of this, informal lending often comes with added flexibility and lack of penalty for late repayments, which can be enticing to someone who is not in the right position to make legally binding agreements or stick to a regular payment schedule.
Those facing mental health issues may be in an unfortunate position because of their illness, and that could include having to leave work, having a lack of, or reduced income, and being unable to access credit through formal channels as a result.
How can informal lenders and borrowers better protect themselves?
If you are considering lending money to a friend or family member, or you know someone who is considering informal borrowing there are three key things to discuss:
- How much do they need to borrow? It can be tempting to access as much cash as possible when in a crisis but taking more than they need is likely to leave them in a worse position when they come to repay the debt.
- When and how will they repay it? Honesty is the best policy here, if they cannot afford to make repayments, they need to find another method of getting back on their feet.
- What will money be used for? Whether you are lending money or helping someone who is thinking about borrowing, knowing this will help to make sure they are not borrowing too much, or taking help unnecessarily.
If you are the person thinking about lending money to someone in your life who needs aid, you may wish to:
- Formalise the agreement by getting the details in writing and both signing your agreement
- Work with that person to get into a position where formal borrowing is a viable option for them
- Remember that money alone will not fix what they are going through and that you may need to make alternative suggestions for places they can find help
What help is available?
If you, or someone you know needs help, the following resources might be helpful:
- Samaritans (mental health support)
- Mind Infoline (mental health support)
- Saneline (mental health support)
- Step Help (debt help)
It is always difficult to manage your finances when medical problems arise. But whether they are mental or physical, financial advice and planning can make sure that you are on track to meet your financial goals and make the most of your situation - whatever that entails.
To talk to an adviser or planner about your finances, feel free to get in touch with us.
Adjusting your retirement plans in light of the State Pension Age changes
Almost two million people face the reality of changing their retirement plans less than 10-15 years before they aim to stop working, according to Retirement Advantage.
Changes to the State Pension Age will mean that up to 1.8 million over-50s could be forced to work an extra three years if they don't make swift changes to their retirement plans. Are you, or is someone you know among them? Read on for your next steps.
What is happening to the State Pension Age?
It's being pushed back. So far, the age at which women start to receive their State Pension has been increased from 60 to 65, to bring it in line with the men's age. From 2019, the age will rise again, for both sexes, to 66. Further changes will mean that, by 2028, the State Pension Age for some people will be 67. Further increases are due between 2044 and 2046, which will push the State Pension Age back to 68.
The exact age that you will be able to claim your State Pension will depend on when you were born, for more information on this, click here.
What effect has this had so far?
According to the research:
- Almost two thirds (61%) of people over the age of 50 will now work for one-to-five years longer than they had originally planned
- 23% of over-50s will now work for up to 10 years longer
- The changes are affecting more women than men, with 35% of women changing their retirement plans, compared to just 21% of men
What can you do if you are one of them?
If the changes to the State Pension Age have affected your retirement plans, there are several things you can do to try to reduce the amount of time you will need to continue working. In order, they are:
1. Re-evaluating your retirement plans
Don't panic and assume that you will need to work for longer just because the State Pension Age is increasing. If you already have plans in place to retire early, or to use your own savings and investments as income when you leave work, you may be able to continue with that route after making a few adjustments.
2. Identify what you already have available to you
Calculate how much you will have when you reach your ideal retirement age, accounting for your savings, investments, personal pensions and workplace pension. For help with this, you can use a pension income calculator, or talk to a financial planner or adviser.
3. Work out how much you will need
While you may only need to support yourself for an extra year, you may be within a group with a much longer gap. It is important to be sure that taking that extra money at the start of your retirement won't affect your ability to afford care and accommodation in later life.
4. Identify any shortfall
If there is a difference between the retirement income available to you and the amount you need, it is time to start planning how you will fix that. You have three options here:
- Work for longer: Even if it is part-time or as a consultant, continuing your career for longer will give you extra income, without the need to work full-time and sacrifice the activities you had planned.
- Live on less: If you have less money to work with, but you are determined to stop working on your goal date, then it may be necessary to tighten the budget during the first few years of retirement so that the money you do have will last longer.
- Put more away: Alternatively, you could restrict your spending during your working life to ensure that you have enough to live on when you retire. The biggest thing that will help you to achieve this is a Workplace Pension, so making sure that you are enrolled at work is important.
- Take the help on offer: This includes automatic enrolment into a Workplace Pension and the tax relief available on money invested in it.
Talk to us
An independent planner or adviser will be able to help you to see your situation with fresh eyes, putting a new perspective on things and hopefully brightening your outlook. They will also be able to apply their years of financial knowledge and experience to suggest solutions which you may not have thought of, or heard about, previously.
To start discussing your options and to restore your confidence in your retirement plan, please get in touch with us.
Beaufort App re launch
Beaufort Financial has re launched its app on the 'MyIFA' platform. Download on your Apple or Android device to stay up to date and access handy tools to take control of your finances using the password 'beaufort'.
Tools include a range of calculators such as income and inheritance tax, mileage trackers and receipt managers as well as many more. Learn more about Beaufort Group's business, news and services and keep up to date by enabling helpful notifications.
The app is the best way to find solutions to everyday financial matters whilst keeping engaged with Beaufort - download it today!
Please note, our previous app will soon no longer be supported - to ensure you don't miss out you must download the new app - simply search for 'MyIFA' in your app store and enter BEAUFORT when prompted.
Further interest rate rises predicted: How to stay ahead
We're almost half way through 2018, and it's likely that you've already thought ahead about some things. Maybe you're planning a trip abroad during the summer holidays, or you're a really eager Halloween costume aficionado (and we won't mention those who are already thinking about tinsel and stockings!).
But have you thought about interest base rate rises?
They're not as exciting as holidays and parties, granted, but it is important to act now if you are going to protect your finances from the impact of the predicted increases over the next 12 months.
What's likely to happen?
According to experts, the Bank of England (BoE) is likely to raise the base rate twice in 2018, with another two increases expected to follow next year (Source: EY ITEM Club. Naturally, all financial predictions should be treated with an amount of scepticism, however, it seems certain that when rate rises do come, they will be gradual in nature.
Nonetheless, borrowers should not underestimate the impact on their personal finances, nor should savers overestimate the benefits of them.
If the predictions made come to fruition, the base rate may increase by as little as 0.25% each time, but that will still be a minimum increase of 1% over the next 24 months. Whilst it might not sound like much (especially if you remember the late 80s and early 90s), it is likely to impact you.
What will an increase mean for you?
There are two sides to the potential effects of base rate rises; the negative impact on borrowers, and the benefits it can bring for savers.
For borrowers:
Last year, it was estimated that 3.9 million homeowners had variable, or tracker mortgages (Source: Council of Mortgage Lenders). That means that just over two fifths of homeowners face a rise in monthly repayments every time the base rate is increased.
Variable and tracker rates are, by definition, not fixed. Therefore, when the BoE increases interest rates, this rise is passed on by the mortgage lender to those people with these types of mortgages, pushing up their monthly payments.
If you have a tracker or variable mortgage, the first thing is to understand how much your mortgage payment will increase by if interest rates rise, then ask if you can afford it. If not, it is time to start looking at your options. These include:
- Moving to a fixed rate mortgage
- Cutting back on other expenses to free up the money to cover the increased payments
- Use the time you have to head off any rises and start putting a financial buffer in place which can absorb the extra costs for a while
Fixed rates are usually offered on a fixed-term basis, so it is likely that you will need to shop around every two-to-five years to find a product that suits your needs.
For savers:
Increases in interest rates are mostly good news for anyone building their savings. Whether it's to be used as a deposit on your next home, or you are concentrating on making sure that you have enough to live on in retirement, higher interest rates should give you better returns on your savings.
However, it is unlikely that providers will be rushing to pass any rate rises onto their customers, so where you choose to keep your money now, will matter in the long run. That means that you will need to shop around if you are to see the best possible growth in your savings.
It is also important to keep inflation rates in mind. Even though they may show signs of having peaked last year at a post-Brexit-vote high, it is still tough for savers to find a real return on their money and this is unlikely to change anytime soon.
Our three top tips for finding the best saving account are:
- Shop around; using more than one comparison tool
- Consider differ types of account; could locking money away in fixed-growth options be better for you?
- Do your research into how providers reacted to the previous rate rise; if they were reluctant to pass the increase onto savers, they are unlikely to act differently during future rises
Where to go from here
Whether you're currently borrowing or saving (or, most likely, a mix of both) you will undoubtedly be looking for ways to stay ahead of the potential base rate rises over the next 24 months. The best way to do this is to engage with a financial planner or adviser to develop a strategy and gain insights which will enable your money to work for you and allow you to meet your financial goals.
For more information, or to get started, feel free to get in touch.
Retiring on time: Five tips for giving up work on your own terms
Do you have a dream retirement age in mind? Most people do.
Unfortunately, many people believe that, no matter how hard they wish to retire on time, they will be beholden to their employer long past the age they'd like to be putting their feet up.
The situation
According to research from Scottish Widows, more than 10 million UK adults estimate that they will need to continue working until they are no longer physically able to do so. Furthermore, three million people say that they have no choice but to work until the end of their life.
Less than a quarter (24%) of people expect that they will have left working life behind completely by the time they reach 65, with the least optimistic outlook held by younger generations.
51% of people expect to remain employed on at least a part-time basis; and just 18% say that this will be down to preference, rather than necessity.
Your options
Retiring at a reasonable age shouldn't be impossible, but it will mean planning ahead and might mean making some changes to your current financial habits.
1. Know your position
Look at what you are currently doing to prepare for retirement and use a calculator (such as this one) to work out:
- How much you are likely to have in retirement, without making any changes
- What age you could retire
- How much you will need (lump sums and income) to retire on your own terms
- What the shortfall is
You can then use this information to determine what needs to change between now and the age you want to retire, to ensure that you have enough money to support your desired lifestyle.
2. Save more
Putting more money aside now, will give you more income when you choose to access it. It sounds simple enough, doesn't it? But, according to the research, 23% of 25-54-year olds are concerned that they are not putting enough away for the future. Meanwhile, 39% fear running out of money completely after they give up working.
3. Take advantage of the helping hands offered
If you are paying into a workplace pension, you already have a great foundation for sensible saving habits. However, for those who have joined a pension through the introduction of automatic enrolment, the minimum contributions made by you and your employer are unlikely to be enough to provide an adequate retirement income.
Currently, your employer must contribute the equivalent of 2% of your pensionable earnings (the income you receive between £6,032 and £46,350 each year), whilst a further 3% is taken from your salary before you receive it. Unfortunately, current expert guidelines state that the average worker will need to put a total 12% of their annual earnings to one side, meaning that many people currently contribute less than half of what they will need to live the retirement lifestyle they aspire to.
4. Repay debts
If you can retire without debt, you will be able to do more with your income. Reducing your living costs as you enter retirement will make a big difference to your ongoing budget. With a smaller portion of your retirement income being lost to repaying debts, you will have more available to enjoy the retirement lifestyle you want.
How you achieve this will differ, depending on your circumstances. But it could include moving into a smaller property, cutting back on non-essential spending and even smaller changes, such as shopping around for better deals from utility providers.
5. Talk to a professional
Engaging with a financial adviser or planner will help you to get on the right track to retiring on your terms; your income and age of choosing.
Research has shown that, those who seek the help of advisers and planners can save up to £98 per month extra toward their retirement income, which could give you an additional £3,654 per year to live on when you stop working.
Planning for retirement can be a daunting task. But, by talking to the right person, you can ensure that you are able to stop working, when it suits you, and with the retirement income you want. For more information or to get started, why not get in touch with us?
Gender pay gap does not need to continue into retirement
Historically, men have received more money annually from the State Pension than women. In a recent Which? survey it was shown that over 20 years, women would receive £29,000 less on average than men; however there are a few factors at play that mean the annual discrepancy may be largely offset. These include women receiving their state pension earlier than men at 60 and not 65. With the state pension age now being very close to equalised, how will this effect women going forward - will they continue to take a reduced annual benefit than men?
How the State Pension is calculated
To be eligible to receive any State Pension, you must have at least 10 years of National Insurance contributions on your record. How much you receive each week will depend on how many qualifying years you have in total, and to receive the Full State Pension, you will need a minimum of 35.
Qualifying years can be accrued in three ways:
- By paying National insurance through an employer or self-assessment
- By receiving National Insurance Credits, which are awarded by claiming some State Benefits
- By making voluntary payments
Where is the gender gap?
The main reasons for the gap in pension benefits are: women are more likely to work less hours, women have historically earned less than man, have taken time off work or leave employment altogether for periods of time during their lives to take care of children and or elderly and infirm relatives.
The new flat rate of state pension benefit that was introduced in April 2016 (currently £164.35 per week) is designed to rectify the previously mentioned issues that currently negatively affect women. In the past, a part of the state pension was based on earning and the more you earned the more you would receive from the state in retirement. This has been replaced and you are now awarded a flat credit for each year you earn more than £6,032 per annum no matter how much you actually earn in any one year.
Childcare and National Insurance credits
Parents who receive Child Benefit and are caring for a child under the age of 12 receive National Insurance credits automatically. If a parent is not entitled to Child Benefit they should still apply and ask for no payments as this will activate the automatic credit and count towards the state pension.
Grandparents and other family members aged over 16 but under state pension age that provide care for a child aged under 12 may also be able to get Specified Adult National Insurance credits. These are not credited automatically and need to be applied for (using form CF411A).
State pension credits for carers
If you receive Carer's Allowance, you'll automatically receive credits on your National Insurance record and therefore credit for your state pension.
Understanding your State Pension should be seen as part of the wider retirement planning process. So, to make sure that you have enough retirement income to achieve your goals, you can:
- Calculate how much you will get:
Using a State Pension forecast calculator, you can see how much you will have when you stop working and need to access your pension.
Knowing how much you will have if you don't make any changes to your current situation will help you to identify any shortfall.
- Fill in any gaps in your record:
You can view your National Insurance record and make any voluntary contributions by clicking here.
- Evaluate your other pensions:
Knowing what you can expect to get in retirement income from your workplace or personal pensions will give you a better idea of the overall income you can expect to receive when you stop working.
- Seek financial advice:
Research has shown that those who engage with a financial adviser or planner could put an additional £98 toward their pension each month. This equates to an extra £3,654 in annual retirement income for later life.
Talking to a financial planner will also enable you to make better financial decisions and create a plan which will see you meeting your long-term retirement goals by making adjustments and changes in the short-term.
To get started, please feel free to contact us.
Knowing your goals: How to plan your retirement around the things that matter to you
Research from Scottish Widows has shown that the top priorities for those planning for retirement, are generating an income (41%), and having flexibility over that money (40%).
Other goals came in much lower, with the ability to pass on benefits, such as an income or lump sum, to a spouse or dependent at 10% and control over investments at just 9%.
However, it is unlikely that the priorities you have for your retirement will be the same as everyone else. So, how can you identify your retirement aims, and further still, achieve them?
Understanding your retirement priorities
We can't tell you here how to define your aims for retirement, but we can tell you that they should be:
- Personal
Your priorities should reflect the things that are most important to you, not necessarily your family. If you have a desired lifestyle in mind, generating enough income to support that will be high on your list, much like freeing up time to spend with loved ones will be important to some. Don't be afraid to delve deep and work toward a retirement that truly reflects your aspirations.
- Adaptable
Your retirement priorities are likely to be flexible and can change as you go through life. For example, whilst you may currently be intent on leaving money behind for your children, that vision may expand to include grandchildren and great-grandchildren eventually. It doesn't matter how many times you re-evaluate your plan, as long as you adjust it accordingly, and remain on track for a successful and financially stable retirement.
- Realistic
If you don't have a high salary and have not been putting large amounts into your pension fund during your working years, it is unlikely that you will be able to retire on an income which is equal to what you have during working life. But, you probably shouldn't aim for that as you probably don't need it.
With financial planning, you can set yourself attainable goals that will make you feel just as accomplished and ensure that you have an enjoyable and affordable retirement.
Planning for a retirement that suits you
Retirement planning can be a lengthy process but, with the help of a financial adviser or planner, you should find that it is rewarding and worth it for that added peace of mind, so you will not have to worry about being able to afford to live during retirement. Retirement planning involves:
- Analysing where you are now and where you aim to be
Your current position includes all forms of savings, investments and pensions which will be used to provide you with an income in retirement.
How much you will need, will depend on the annual income you need to support your desired lifestyle, as well as your estimated life expectancy.
You can find all of this out by using a retirement calculator, like this one.
- Plugging any gaps
If your current savings habits are unlikely to provide you with the income you need in retirement, you have three options:
- Accept that you will need to live a more reserved lifestyle, on a budget
- Continue working, even if it is part-time, or as a consultant, to continue earning and delay full retirement
- Start putting more money into your pension funds to boost the amount you will be able to access later.
- Accessing your pension
Since the introduction of Pension Freedoms in 2015, the options surrounding your retirement income have grown, meaning that you have more control from the age of 55.
Your retirement income is likely to be formed of two or more of:
- State Pension
- Workplace pension(s)
- Personal pension
- Savings
- Income from property and investments
It is up to you to decide how to organise those to meet your retirement needs.
Fixed and variable income
The difference might seem straight-forward and self-explanatory; however, it is worth reiterating that:
- A fixed income, such as those provided by Defined Benefit schemes, and Annuity or the State Pension gives you a guaranteed, often inflation-proofed annual income which will be provided for the rest of your life.
- A variable income, available via Flexi-access Drawdown, is not fixed, nor is it guaranteed, but it does mean that you can withdraw money as and when it is needed. Though using this as your only income will increase the likelihood of spending too much and running out of money in later life.
Both options have advantages and disadvantages, and the level of popularity between the two has changed dramatically since the pension reforms. FCA research shows that a third (30%) of pensions accessed since 2015 have been transferred into drawdown, while just 12% have been taken as an Annuity.
However, both play a key role in meeting your retirement goals.
It is important to remember that combining the two options is possible and that you do not have to make an either/or decision when you retire. Rather, it is better to do so. A fixed income acts as the foundation; paying your running costs, such as bills, mortgage and living costs. Meanwhile, a variable income can be used to cover other costs, whether planned or unexpected, which keeps your finances secure and means that you will be able to support yourself throughout retirement.
The role of financial planning
A financial planner will be able to help you to define your goals in a way which turns them into achievable targets. They will then work with you to find methods and routes to get you from your current position, to living your ideal retirement lifestyle, using what you have currently and building on it.
To discuss how financial planning could help you to achieve your retirement dreams, get in touch.
Are you in a financially compatible relationship? And does it matter?
Almost two thirds (60%) of people believe that financial compatibility is one of the most important factors in a successful relationship, according to Scottish Widows.
But what is financial compatibility?
Like any part of a relationship, financial compatibility is multi-faceted and will look different for every couple. However, the research states that incompatibility includes a lack of shared financial aspirations and different attitudes to spending and saving.
Signs of financial incompatibility
You may be in a financially mismatched relationship if:
- You wish your partner was better at saving
20% of people feel this way and it could be a sign of differing priorities where money is involved. It may also signify that you see the future differently to one another, if one of you values spending over saving, you're likely to feel the friction.
- You feel like your savings have been impacted by your partner's spending
Being unable to reach your financial targets can be frustrating, especially if the reason is your significant other. This feeling is shared by more than a quarter (27%) of people and rises to 41% for couples who are working toward living together.
- You have a lack of shared financial goals
The feeling of taking different approaches to finances can easily put a wedge between partners. 17% of people have felt that they and their partner have different financial goals and that their relationship has been strained as a result.
Communication could be the key
A lack of communication and shared planning could be the main reason why so many people feel that their partner's attitude towards finances is so different from their own.
The research shows that people who form relationships in later life are more likely to discuss finances from the beginning, with 34% of over-55s doing so, compared to just 8% of 18-to-34-year-olds. Furthermore:
- 11% of people do not tell their partner how much they earn
- 57% of people don't know how much their partner has in the bank
- 25% of married people admit to keeping money separate from their spouse's
So, more communication is necessary.
Should financial incompatibility be a deal breaker?
Not necessarily.
However, it may simply be down to a need to talk more openly and communicate with one another. It is nonsensical to expect your financial aspirations to be perfectly aligned if you have never sat down and discussed how you think money should be treated.
Catherine Stewart, retirement expert at Scottish Widows, said:
It's important that couples - at any age - have open and honest conversations about their finances to make sure they have an understanding of their individual longer term financial goals.
Some people may be more inclined to focus financial conversations on big life events like buying a house, having a family, or taking time out from work to travel together. Life after retirement should also be on this list; having a good understanding - early on - of each other's retirement goals will help to ensure couples can work towards a realistic joint financial plan.
A meeting of minds
Creating a joint financial plan is an important step in any relationship. It could be signal of commitment, or that big changes are planned. Either way, the simple act of talking about your finances, both as individuals and as a couple, will strengthen your bond and give you the opportunity to address any differences of opinion.
Speaking to a financial planner or adviser as a couple will give you the opportunity to combine your goals with professional insight into the strategies and methods available to help you to achieve them.
For more information, or to speak to a financial planner or adviser, get in touch.