News & Views

DIY retirement planning is a bad idea

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Despite the advantages, relatively few people speak to a financial adviser or financial planner before making important decisions with their money.  A survey carried out by the Financial Conduct Authority (FCA) as part of their 2017 Financial Lives report found that only 6% of UK adults had worked with a regulated adviser in the past year.

Instead of taking professional advice, choosing to go it alone means you carry the responsibility of your decisions and their subsequent outcome.

New research from financial services provider Sanlam found a high degree of confidence among DIY investors.  They found that almost half of adults in the UK are choosing not to work with a financial adviser to plan their finances.  The ‘What’s Your Number?’ report from Sanlam found 44% of those that haven’t spoken to a regulated adviser believe they can manage their finances themselves.

The lack of people seeking advice, and their confidence in making the best decisions without the help of an adviser, comes at a time when more than half of savers have doubts about their ability to retire on their timetable.  55% of savers fear they won’t be able to retire on time, and 77% admitted they haven’t set a target for their retirement savings.  A timetable for retirement and knowing your number (how much you need to save to live the life in retirement you want), are two important duties fulfilled by financial planners such as our business, Wells Gibson.

The research found it was members of the older generations who were least likely to have spoken with a financial planner.  51% of over 65s have never taken financial advice, and 57% of people in this age group said it was because they could do it on their own.  One in five of those responding to the survey who had more than £100,000 in savings said they had never spoken to a professional financial adviser at any time in their lives.

The majority of those said they trusted their instincts to make the right decisions.  Unsurprisingly, the Internet seems to be a popular source of information in helping DIY investors make their financial decisions.  It came in second place after speaking to family members.

However, the research did show that those who seek advice are far more confident about their decisions.  Advised clients were twice as confident as non-advised clients about being able to retire how and when they wish.  Advised clients were also far more likely to have set an income target for retirement, and to have allocated or passed on money to the next generation while they are still alive.

Lawrence Cook from Sanlam said:

“In this age of accessible information, the temptation is to think that all the answers to problems we face can be found online.  When it comes to retirement, the real task lies in identifying the right questions to ask.

“Holistic financial planning is about so much more than tactical advice, and most will naturally be unaware of the financial planning strategies that can help them reach their financial goals.

“At the heart of the problem, many are simply crossing their fingers – in some cases burying their heads in the sand altogether.  The truth is the majority – 55% – have doubts they will be able to achieve the retirement they want.

“The fact remains that proper, robust financial planning is the best way to ensure you can achieve your financial goals in a smooth and timely way.”

DIY retirement planning is a bad idea.  Working instead with a professional financial planner, means getting answers to your big questions and carefully considering all of the options, and mapping out a retirement plan on your terms.  The question is, what does your financial future look like?

Retirement is one of life’s transitions, not a cliff-edge

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The traditional approach to retirement has changed, dramatically so, in recent years.  What used to be viewed as a cliff-edge has, for many retirees, become more of a gradual transition into a different lifestyle.

Where retirement used to involve a complete break from work – one-day clocking in at 9 am, the next with no employment commitments to fulfil – it’s now increasingly common for retirees to work part-time, or volunteer in some capacity.

New research from Fidelity International has found that more than half of UK adults plan to work at least part-time during their retirement.  The retirement trends research found 52% of people intend to continue working in later life.  This still represents ‘retirement’, as on average people expect to step back from their primary job at 66 years old.

However, a significant 45% of those surveyed expect to continue working in some capacity well into their 70s, and almost one in ten expect to be still working in their 80s or beyond.

An expectation of having or wanting to work for later could be linked to improvements in longevity.  Average life expectancy at birth in the UK is now 79.3 year for men and 82.9 years for women, with a child born today expected to live for a decade longer than a child born in the 1950s.  As we’re living longer, on average, it’s natural to expect to work longer.  Alternatively, the amount saved during our working lives would need to be significantly higher, to last for longer in later life.

Already, this improved life expectancy is feeding through into different lifetime working patterns.  The latest official figures show the proportion of over 70s in full-time or part-time employment has doubled in the past decade.

Maike Currie, director for workplace investing at Fidelity International, said:

“With 60 now widely seen as ‘the new 40’, today’s so-called retirees are healthier, living longer, and retiring at different ages. So, it is unsurprising that people have no desire to retire and are defying traditional expectations.

“The economic power of those who were once considered ‘past it’ can now be felt everywhere.  This will transform the jobs market as more people work into their late 60s or even early 70s and they will have a growing influence on consumer spending as pension reforms allow them to cash in their lifetime savings and spend the money as they wish.”

The research also found that higher-income households are more likely than lower-income families to plan to work into their retirements.  The financial choice could, therefore, play a role in this decision.  58% of people from higher-income households had this intention, compared with 50% from lower-income families.

Higher earners do however expect to step down from their primary career an average of two years earlier.  Households with income exceeding £50,000 a year expect to retire at age 65 on average, while families with income of less than £50,000 plan to retire at age 67 on average.

What this research shows is that, for many of us, retirement is no longer the one-off event it used to be.  Instead, retirement increasingly involves a gradual transition from work to leisure.  As well as financial, there are many benefits to working in retirement.  The sense of purpose and identity that comes with continuing to work can have positive mental and physical health outcomes when compared with retiring fully from all work.

What matters is having a clear plan for retirement and having choices when it comes to continuing work.

Sometimes, it’s not possible to work in our 60s, 70s or 80s, due to poor health (for ourselves or a loved one who needs our care), or the lack of suitable employment.

To create these choices, having a robust and fully funded retirement plan, that can kick in should work become impossible, is a must-have.  Working with a financial planner to identify how much you need to save and how to best structure your retirement wealth is a valuable step.

Pension blind spots can damage retirement wealth

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Did you know you can access your pension pot early in the event of severe ill-health?  According to a new survey of non-retired UK adults, more than half of pension savers weren’t aware of this early access provision.

The research, carried out by Opinium on behalf of the Money and Pensions Service, spoke to 2,008 non-retired UK adults to gain a better understanding of their pension awareness.

They found knowledge was lacking when it comes to contributions during parental leave, tax-relief for the self-employed, and the terms of pension auto-enrolment.  56% of those survey did not know that it’s possible to contribute to a pension while on parental leave.  More women were unaware of this than men, with 61% of women not knowing they could keep on paying, compared with 51% of men.

Nearly two-thirds of those surveyed didn’t know that self-employed people could gain tax relief on their pension contributions.  The picture when it comes to an understanding of pension auto-enrolment was slightly better, with 65% of those surveyed aware that the minimum contribution rates do not guarantee enough will be saved for retirement.

Money and Pensions Service acting chief executive Caroline Siarkiewicz said:

“It’s clear that many people are unaware of their options when it comes to important events in their lives that can impact their pensions such as becoming a parent or starting their own business.

“Women in particular have many important financial decisions to make when transitioning into parenthood but our findings suggest they are less likely to be aware of their pension options.

“However, our findings suggest that many might be missing out on important information when making decisions affecting their pensions.  You can speak to a pension specialist for free, confidential help by contacting The Pensions Advisory Service helpline or webchat.”

To avoid pensions blind spots, the Money and Pensions Service shared three top tips.

Continue to make contributions to your pension while on parental leave.  Check with your employer how this will work.  This will vary depending on whether you are part of a defined contribution scheme or defined benefit scheme.

If you are suffering from severe ill health and wondering what your options are to access your pension, talk to your pension provider.  They will be able to explain whether you are eligible to access your pension early.

If you are self-employed, you could receive tax relief on the amount you put into your pension so it’s worth making contributions if you can.  Further support for self-employed people with their pensions is available through the Pensions Advisory Service who offer a specialist telephone-based appointment service.

Pension blind spots in the form of misconceptions and misunderstandings can be extremely damaging to wealth in retirement.

If you’re unsure about any aspect of the pension system, please don’t hesitate to contact Wells Gibson.

Do you have a clear retirement savings target?

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What’s your retirement savings target?

Don’t worry if you can’t answer this question quickly.  A considerable number of people don’t have a ready answer to this critical question.

According to new research, around 40 million UK adults could be taking their chances when it comes to retirement, admitting they either have not or did not set a savings target.  The research, as part of Sanlam’s “What’s Your Number?” report, is highlighting how a lack of basic knowledge about retirement planning could be damaging our ability to reach future financial goals.

Within the report, it found that more than half of UK adults don’t think they can save enough money to retire when they want to finish work.  Only 12% of under-55s have a specific target for the size of their pension pot.  This lack of knowledge around retirement planning is brought into sharp focus by the fact that four times as many people know their lottery numbers off by heart.

It’s the 45-54 age group who are mainly at risk from this lack of explicit knowledge and goals. Only 18% in this age group, which should be saving at a significant rate, have set retirement goals.

Applied across the UK population, that means that 8.2 million adults are heading into retirement without a clear set of goals.  They could be failing to make the most of some of their most lucrative years of career earnings, undermining the opportunity for a financially secure retirement.

Within the research, there’s a significant gender gap.  Women are particularly exposed to a lack of precise retirement planning.  Only 18% of women have set a financial target for retirement, compared to 29% of men. With women already facing a gender pensions gap, this lack of clear retirement objectives could be especially harmful.

The research discovered that the main aims for retirement were not having to worry about money, maintaining a current living standard, and being free from debt.  Other retirement planning goals include having a regular income and repaying the mortgage before retiring.

So why are we failing to plan for retirement?  Around two-fifths of UK adults don’t see setting targets as being essential for their long-term financial planning, which could explain the complacency.

Jonathan Polin, Sanlam UK CEO, said:

“’What’s your number?’ is a simple question, but the answer is often less straightforward.  The gap between what people think they need and what they actually require in later life is huge, and sometimes life-changing.

“By taking some very simple steps, setting clear financial goals, and identifying a clear path to get there, this nightmare can be avoided.”

It’s hard to understate the importance of having clear goals for retirement savings.  Knowing how much you should be saving each month, to maintain your desired lifestyle in later life, is critical to a successful and fulfilled retirement.

Later life misconceptions and retirement reality

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There are plenty of misconceptions about retirement.

Part of my role as a qualified CERTIFIED FINANCIAL PLANNERTM Professional and Chartered Financial Planner, is to help turn retirement from a series of perceptions into a (hopefully more positive) reality.  An issue with our perception of retirement is that we’re informed by the experiences of our parents’ or grandparents’ generations, or by cliched images of retired couples that appear in the media.

Close your eyes for a moment and picture an image of retirement.  Do you imagine silver-haired couples smiling from the deck of a cruise ship or standing on the golf course?

A quick search of ‘retirement’ on stock photography websites generates plenty of images of wrinkles, walking sticks, and even wheelchairs.

In an attempt to address some of these retirement misconceptions, interactive investor has published their Great British Retirement Survey; a comprehensive study exploring the attitudes and experiences of 10,000 Brits approaching or in retirement.  Rather than reporting retirement as a time of pleasure, almost two-thirds of those surveyed said that financial worries are a big concern at this stage of life.  Does this maybe mean fewer cruises and more time spent searching for bargains in Aldi?

One significant conclusion from the research was a need to address the ‘gender agenda’ in retirement.  This finding shows that men are twice as likely to work into retirement for enjoyment, and women for money.  Meanwhile, retired women were found to be twice as likely as men to say they are just getting by financially.

The survey also found some real positives about the retirement experience.  One in 10 of those surveyed said they felt retirement was the time to resume studying, and nearly a third said they would consider starting a new business or taking up new hobbies.

More than half of those surveyed said they would do some voluntary work for their local community when they retire. More than a third are already doing unpaid voluntary work.

Providing free childcare was another positive outcome for retirement plans, with 18% looking after grandchildren, counting this as unpaid work.

Looking at retirement priorities, one in five of those surveyed said they travel and holidays were their biggest priorities in later life.  This priority was followed by spending more time with family and getting more exercise.

The biggest worries for those already in retirement included the impact of a stock-market crisis, running out of money, tax issues, and not being able to afford to help younger family members with large expenses.

All of these retirement worries can be remedied through the Financial Planning process.  At Wells Gibson, we work with clients to model the financial impact of a stock-market crash (and subsequent recovery), so they can understand what this means for their long-term financial future.

Running out of money is another worry addressed through the lifetime financial forecasting.  By making reasonable assumptions about the future, we can project forward to demonstrate a likely net asset position at age 100.

Tax issues are also dealt with when you work with a Financial Planner.  While tax planning isn’t our primary service, it is part of the value we offer, optimising your retirement plans in light of ever-changing tax legislation.  Also, helping younger family members with significant expenses is a scenario we often model for our clients, to demonstrate the impact of making substantial gifts or loans to the next generation.

What matters when it comes to your retirement planning is what and who is important to you; and your desired lifestyle and financial goals, and not a set of perceptions about what retirement means.