Efficient Wealth Update August 2018
What to Think About When Retiring or Already Retired?
If you have already read our book, ‘The Dream Retirement’, you will know that we’re passionate about helping people prepare for their ideal future. If you have read the book, you will have also, hopefully, picked up some useful tips, ideas and general guidance too! But this month we wanted to revisit some of those ideas, as future planning is something that should always be at the forefront of your mind.
Whether you are retired already or are planning on it, there are always some key things to think about before or during. Some of these points are probably geared more towards those planning for upcoming retirement, but they are still valid for those who are currently retired and are looking to review their position.
Find out what you’ve got
It’s good to know what funds you have, when you can get them and how long you think they will last. This can either put your mind at rest or give you a goal to work towards.
Where do you want to live?
Do you want to stay in the UK or live somewhere sunnier when you retire? Do you want to move closer to your children or grandchildren, upsize or downsize? There are so many factors to consider, but a decision on this can be a starting point for working out what you will need financially.
When do you want to stop working?
This is one to be realistic about. While you may want to stop work at 40, it probably isn’t or wasn’t realistic at the time! Suddenly, you’ve hit the big 6-0 and you’re still working 9–5. By finding out what you have (see point 1) you can work out when is the right time for you to stop working, and then work hard to make that happen. Or, even better, create the perfect work-life strategy that enables you to continue doing the business activities you love, whilst being able to spend the rest of your time filled with your favourite activities with the people who mean the most to you.
Work out the level of income you need (or want!)
Working out what you absolutely need to live on (e.g. mortgage, bills, etc.) is a good start, but it’s always nice to have that bit extra for life’s little luxuries, so make sure to factor that in. Remember, your expenditure is likely to reduce when you are retired if you are coming to the end of your mortgage or no longer have to support your children. One way we help our clients to plan around this is using Lifetime Cash-Flow Forecasting, so that they can gain confidence and clarity over what they have, what they’ll need to spend, and what they afford to splurge.
Pay in as much as you can
Once you have worked out what you need and want from retirement financially, it may be that there is a shortfall. This is the time to fill the gap, and even paying in a small amount to your pension can make a difference – don’t forget you get tax relief at your marginal rate on what you put in (up to the lower of your net earnings or £40,000). Speak to your employer if you have one – if they are contributing to your pension they will normally put more in if you increase your contribution, so you get a double whammy to the pension pot.
Keep the family in mind
If you have a spouse, make sure they are using their pension as well. Once you’ve used up your annual allowance, look at whether they can use theirs to help build your joint retirement fund. Make sure you update your ‘nomination of beneficiary’ to name who you want to have your pension when you die- it makes it easier for everyone involved and means your pension goes to the people you want it to.
Keep on track
Your planning for retirement should start as early as possible and that message should be passed on to the rest of your family. You are never too young to have a pension. Make sure you track the progress of your pensions or retirement savings, so you can increase them where necessary. It usually helps to have all of your pensions in one place, so if you have some you want to add to your current portfolio with us, then let us know. We can then access if they could be consolidated to boost performance, or if the benefits you are receiving are worth keeping hold of.
Choose the right investments
If your portfolio investment is with us, we will do all of that for you, so you don’t have to worry. For those of you who self-manage or have investments elsewhere, make sure you are investing in the best funds and that you focus not only on growing your fund but also on protecting it, and calibrating it to the right risk level for your needs.
Take everything into account
It’s not just your pension that can be used in retirement, there are other investment vehicles that can be useful if they are suitable for you. Speak to us to see where else you could invest your funds.
Work out what’s important to you
What is important to you in retirement, be it security or flexibility, will affect your overall retirement plan and so it is good to be clear on this decision before agreeing to anything that you perhaps cannot reverse in the future.
Wills – Do Them Right
Increasingly, we hear about ‘have a go’ challengers to Wills – those who challenge Wills based on a claim they believe they have to a share, or a greater share, of the estate in question.
A recent report told of two brothers, one of whom is now contesting his late-mother’s Will as she left a larger share of her estate to his brother. There will no doubt be more to the story than meets the eye, but there does seem to be a rise in these types of claim across the board. With modern family set-ups becoming increasingly complicated and a rapidly ageing population, is this a sign of more to come?
It is an English tradition that we have the freedom to leave our estate to whomever we please. This is not a tradition that is adopted everywhere, some countries have forced heirship rulings. So, when we leave our estate or assets to someone, we want that to happen unequivocally.
The courts can get involved in disputes if necessary, and the only way to prevent a successful challenge to your estate is not to attempt to fight it yourself! Not only do you risk doing it incorrectly, making the defence invalid, but you will also miss out on valuable estate planning advice, especially if you have a large and complex estate. If you do want to exclude an individual from your Will, there are multiple ways to help prevent challenges that you may not be aware of.
In short, it is a much more complex process than people believe, and you should always seek out a professional to draw up your Will. You wouldn’t ask a novice to take you parachuting so don’t ask one to draw up something as important as your Will.
Savings Interest Rate Minimum
The Financial Conduct Authority is in discussion about a Basic Savings Rate (BSR) on cash savings, in an attempt to tackle discrimination in this particular market. The idea is that once an account has been open for a set period of time, the BSR would apply.
This investigation has been triggered by findings that the current cash savings market has little competition, especially for those who are loyal to one provider. Given the prevailing view that switching is hard work and time-consuming, fewer people are willing to spend the time shopping around for better cash interest rates. The FCA’s stance on this is that these people should be treated as fairly as those who do.
The intentions of this investigation are honourable, with the regulator trying to stop banks and other corporations taking advantage of their customers. Whether or not this will come to fruition is yet to be seen.
Are You a ‘Hands On’ Grandparent?
With working life getting more hectic and childcare more expensive, grandparents are increasingly stepping in to pick up the slack and help out.
If this is the case for you there is a benefit you could be missing out on, or actually are most likely missing out on, because only 20% of those eligible currently claim it.
If you think about it, depending on how ‘hands on’ you are in looking after the grandchildren, it can become a full-time job that is sometimes harder than working a 9–5, so why not get a little extra towards your retirement fund for doing it?
If you care for children under the age of 12 and you are below State Pension age, you qualify for Class 3 National Insurance credits that count towards your qualifying years for the full State Pension. If you are retiring after April 2016 you need a full 35 years to qualify for the total amount, and so this would be a great way to top up if you need it.
You do need to make a claim, so for further information please follow the link to the official website:
Notes on Brexit
The European Union (Withdrawal) Act 2018 received Royal Assent on 26th June and has now passed into law. It has two main parts: The first is to end supremacy of EU law by converting European laws into domestic law with temporary powers to enable corrections to laws that would otherwise no longer work once the UK has left the EU. It also allows UK law to reflect the final withdrawal agreement reached under the Article 50 negotiations, subject to Parliamentary approval of the final terms.
Given the current divisions in Parliament and the Conservative Party itself, it is the final sentence that causes the greatest concern – that of a No-Deal scenario. The Act lays out steps that will be taken in this case, incorporating votes by Parliament about what will happen. The Secretary of State has indicated that if the deal were to fall through, this would not necessarily lead to the ‘complete absence of any outcome’, pointing to the possibility of a ‘bare bones deal’ or a ‘whole series of bilateral deals’, which is slightly reassuring. It also incorporates a very tight schedule for all aspects of Parliamentary review and voting. This will ensure that, whatever the final deal reached by the October 2018 Council, the Parliamentary outcome is concluded and delivered before 29 March 2019, the date on which, under the terms of Article 50 of the Treaty on European Union, the UK becomes a third-party country.
Were You Prepared for the Base-Rate to Rise?
On 2nd August the Monetary Policy Committee voted 9 to 0 in favour of a base-rate rise. This is the first time in almost 10 years that the rate has been above 0.50%.
Here at Efficient Portfolio we have been assisting clients in ensuring their mortgages remain affordable over the medium term and that these small interest rate rises don’t become bigger issues in the future.
An increase of 0.25% for a £200,000 25-year term mortgage could increase monthly payments by over £25 per month. If you were to move on to your lenders Standard Variable Rate following a fixed rate this could be even more significant, increasing repayments by an average £163, Moneyfacts said — equivalent to £1,965 a year.
If you are unsure about your current mortgage rate and product, or you just want to ensure you are on the best possible rate then please give our mortgage team a call on 01572 898 060.
Book of the Month
Previous recommendations have been Dan Priestley’s ‘Oversubscribed’ and ‘The Entrepreneur Revolution’. Priestley is brilliant at producing easy-to-read business books that, whilst often don’t give you earth shattering never heard of before ideas, consistently get you thinking about your business in a way that never fails to help you find areas where you could improve.
As a result, this month’s book recommendation is actually 2 more of his books: The first, and the one he is most famous for, is ‘Key Person of Influence.’ This is a brilliant book that looks at a way to put the business owner in the forefront of their industry, so that they actually attract their perfect clients.
The second is his latest book, ‘24 Assets’. I love what he has done with book, breaking a business into 24 different areas. If you have mastered them all, your business is the most valuable it can be. Again, it was a springboard to finding new ways to improve Efficient Portfolio. If you own your own business, or have aspirations to do so, I highly recommend these books, to get you creating a business with genuine value.
Charlie’s Mini Blog
Last month I was featured on LBC radio again. ‘Leading Britain’s Conversation’ is what Talk Radio used to be, before they become Talk Sport, which now attracts a global audience. I have featured on Clive Bull’s Sunday evening Money Hour on a number of occasions, including twice in as many months.
As a call-in show, you never know what questions you will get asked. Sometimes callers are in tricky situations, where they cannot afford to retire; others have very technical questions about their specific pension scheme. For whatever reason though, this was the first time where we got a number of questions around genuine financial planning opportunities.
One particular caller, a business owner, asked a question we regularly get asked: “Am I too old to worry about pensions?” The answer I always give is, “It really is never too late. You see, even if you are due to retire tomorrow, you can put money into a pension, draw it the next day, and reduced your tax bill by 25%.”
So, it is never too late to save into a pension. Obviously, the sooner you start, the more you benefit from the tax breaks a pension gives you, but like with most things in life, it’s not worth looking backward with regret, look forward at the opportunities!
Do You Have a Purpose?
During your working life, you usually have a fairly clear purpose, because this is often linked to your day-to-day role. It may be that you weren’t lucky enough to make a living from your purpose, so that is what you do in your free time. It may be that your purpose is to make sufficient money to keep a roof over you and your family’s heads. Whatever it is, you probably have a defined purpose to work for and that may or may not be linked to your ultimate purpose.
If you are lucky enough to do a job that is linked to your purpose, there is a fair chance you love it—and as they say, ‘if you love your job, you’ll never do a day’s work in your life.’ When you move into your retirement years, there are a number of challenges you will face, because for many people, their main reason to get out of bed in the morning is gone. For some that might mean finding an amazing new purpose, but for others this transition might be a fate worse than death and pose a tremendous psychological hurdle.
Feeding Our Bad News Addiction
In today’s world of 24/7 media, both online and off, it is easy to get caught up in watching, reading and listening to the news three or more times a day. Many would say that contemporary broadcasting trends enable you have your finger on the pulse of global news as it breaks and to be ‘involved’ in events as they unfold. I can appreciate that argument, but does it make you happy? Only a small fraction of all news that you consume is good news. Is that because good things don’t happen? Of course not. Good things happen all the time, but bad news makes good news, as they say. So are we feeding our bad news addiction?