Tag

Sensible Investing

What happens if you retire without enough?

By | News & Views | No Comments

If you reach retirement age with insufficient savings, you face several choices.  You might continue working.  Delaying retirement by working longer gives you the option to save more, and means your savings don’t need to stretch quite as far when you eventually retire.

Alternatively, you could reassess your lifestyle and spend less in later life.  Cutting back on expenditure in retirement isn’t always the answer, as some expenses are unavoidable.  For homeowners, one option on the table is to release equity from the value of your property, which can be used to fund your retirement income.

New research by insurer SunLife has found that most people in their 50s have insufficient pension savings to afford a comfortable lifestyle in retirement.  The research looked at the finances of 3,000 over 50s, finding that 21% don’t have any pension savings.  For the 79% in their 50s who have saved for retirement, the average pension pot stands at £146,666.

A recent report from The Pensions and Lifetime Savings Association found that the price of a moderately comfortable retirement is £20,200 a year.  By ‘moderately comfortable’, they mean enough to cover the cost of necessary living expenses and some luxuries, including an annual European holiday.

With the full basic state pension at £8,767 a year for an individual, the balance of £11,433 to reach this moderately comfortable retirement income level would take a pension pot of around £282,000.  SunLife calculated the size of the pension pot based on current annuity rates and factored in a 3% inflation growth a year for the retirement income.

Based on their calculations, this means it would require savings to make up the shortfall of £357 a month from age 50 to age 65. For a 55-year-old, they would need to save £531 a month, and the savings target rises to £876 a month for a 59-year-old.

However, what about if your goal in retirement is more than a ‘moderately comfortable’ lifestyle?  The Pensions and Lifetime Savings Association defined a more comfortable lifestyle, including more than one holiday and more spending on home improvements, at the cost of £33,000 a year.

This means that, for the average size pension pot, a 50-year-old would need to save £1,669 a month to retirement with sufficient savings at age 65.  The target monthly savings rise to £2,492 for someone who is 55 and to £4,125 a month at age 59.

Simon Stanney, equity release, marketing director at Sun Life said:

“According to our research, just 9% of people in their 50s are confident they have enough in savings, investments and pensions to fund their retirement; a further 32% say they ‘hopefully’ have enough with a 36% saying they definitely don’t. A further 15% say they are not sure.

“Obviously the average over 50s’ pension pot is not yet mature, and many over 50s will reach their target by the time they retire, but for others, especially those nearing retirement age, the amount they need to save each month is quite substantial if they are to build up a big enough pot to retire ‘comfortably’.”

At Wells Gibson the primary goal of the majority of our clients’ is, to either achieve financial independence or maintain their desired lifestyle in retirement.  Financial planning is key, so you can visualise your financial future, be less anxious about tomorrow and secure all that you value.

Please contact Wells Gibson if you want to know much is enough.

Retirement rule of thumb from new living standards

By | News & Views | No Comments

It’s hard to picture the future.  Various studies have found that we tend to reward ourselves today, at the expense of our future selves.  This can apply in areas including health, diet (one more doughnut surely won’t hurt?!) and our personal finances.

When it comes to retirement planning, 51% of us focus on current needs and wants at the expense of providing for the future.  Only 23% of people are confident they know how much they need to save.

This new research supports the launch of the UK Retirement Living Standards, which could help people picture their future retirement and what that might cost.  Produced by the Pensions and Lifetime Savings Association (PLSA), the New Retirement Living Standards are pitched at three different levels – minimum, moderate and comfortable.  The standards are based on a basket of goods and services, including food, drink and holidays.  The independent research was conducted by the Centre for Research in Social Policy at Loughborough University.  It was based on the well-respected Minimum Income Standard developed for the Joseph Rowntree Foundation.

In each new Retirement Living Standard, there are different standards of living, with a relevant basket of goods and associated costs for each.  Each was established based on what members of the public feel are realistic and appropriate expectations for living standards in retirement.  The basket of goods is made up of household bills, food and drink, transport, holidays and leisure, clothing and personal and helping others.

These new Retirement Living Standards are a useful way to fill gaps in current approaches towards planning for retirement.  They can form a practical first step on a retirement planning journey.

The PLSA wants the Retirement Living Standards to become a widely adopted industry standard.  For example, some pension schemes will use them in general information for scheme members, in annual benefit statements, or to develop personalised targets for pension planning.

The minimum living standard in retirement has been set at £10,200 a year for a single person and £15,700 for a couple.  These amounts cover the cost of basic needs in retirement, as well as enough to have some fun.  For example, within this budget is enough to holiday in the UK, eat out about once a month, and do some affordable leisure activities a couple of times each week.

With a combination of a full state pension of £8.767.20 a year and auto-enrolment in a workplace pension, this minimum standard should be achievable by most.

The cost of a moderate retirement lifestyle was calculated at £20,200 a year for an individual or £29,100 a year for a couple.  At this level of retirement income, there’s more financial security on offer and greater flexibility.  There’s more money for fun too; the budget includes a two-week holiday in Europe and eating out a couple of times each month.

The comfortable level has been set at £33,000 a year for an individual or £47,500 for a couple.  This income is sufficient to cover some luxuries, including regular beauty treatments, theatre trips, and three weeks in Europe a year.

To make these Retirement Living Standards easier to remember, the PLSA has summarised them as £10,000 a year for minimum, £20,000 a year for moderate, and £30,000 a year for comfortable; or 10k-20k-30k.  For couples, it’s 15k-30k-45k.

Nigel Peaple, Director of Policy and Research, PLSA, said:

“The Retirement Living Standards will support better saver engagement.  They distil robust, in-depth research with the public into an easy to understand basket of goods that helps people picture the future – and relatable figures that can provide a powerful and practical tool for encouraging engagement with saving.

“A recent PLSA survey showed 76% of people with a workplace pension agree that Retirement Living Standards would help them know if they were on track for the lifestyle they want in retirement.

“The PLSA looks forward to working closely with the pensions industry to ensure widespread adoption of the Retirement Living Standards to transform the way people think about saving for spending in later life.”

Guy Opperman, Minister for Pensions and Financial Inclusion, said:

“We have transformed saving for retirement for millions of people and the next challenge is to make it easier for them to engage more with their pensions. It’s great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.”

Jackie Spencer, Senior Policy and Propositions Manager, Money and Pensions Service, said:

“Saving for something is easier to do when you can visualise what you’re working towards, which is why people are often more motivated to save for short-term goals like holidays and new cars than they are for their retirement.

“The new Retirement Living Standards are a great way of offering savers some practical examples of what they can expect from their lives when they stop working. The Money and Pensions Service has agreed to be an early adopter of the new standards and will be looking to incorporate them into pension guidance and our online pension calculator.”

Of course, our income needs in retirement are very personal and will differ between individuals and couples.  While these standards represent a good starting point for thinking about the cost of retirement, it’s essential to tailor the exercise to suit personal requirements.

The hidden value of proper financial planning

By | News & Views | No Comments

Almost everyone worries about money, what the future may hold, and the decisions and choices that they will face along the way; yet few realise that proper financial planning is the key to sorting it all out.  At Wells Gibson, we believe it is the world’s best kept secret.  Everybody needs it, but only a few have unlocked its true value.

For those who have, the equation between the value that they receive from their financial planner and the fees that they pay needs to make sense.  Yet, because the benefits of good financial planning and advice are often received in the far-off future, it is sometimes easy to miss, or dismiss, the value received along the way.  Market noise, emotions and periods of what may seem like inactivity on a financial planner’s behalf, can also impact on the perception of value.  It is often easy to appreciate the value received in the first year, and easy to forget or appreciate the value on an ongoing basis. The financial planning relationship can be broken down into three key phases of value.

Sorting out the mess and designing the plan

New clients often arrive with a bag of bits and pieces collected over the years, such as a number of pension plans, with-profits bonds, endowment policies, life insurance and a stock broker or IFA managed portfolio.  This collection of ‘stuff’ often has little structure and rarely provides comfort that the future will be bright.  That’s a stressful place to be.

The first and most vital step is to help clients to set out their vision for the future, both in terms of lifestyle goals and the money needed to fund them.  Next comes the analytical work, which may involve using financial forecasting tools, to help empower clients to make sensible strategic choices.  The resulting ‘plan for the future’ becomes a joint effort between client and planner.  Once sorted and implemented, the client is then back in control of their future and their finances.  The value is easy to see.

Plan progress and progressing the plan

Financial planning is not a ‘set-and-forget’ process, far from it, in fact.  Progress Meetings, normally annually, help to provide clients with an insight into how things are going relative to the plan.  What is more important is the future and how the plan needs to progress from this point forward.  Some issues and consequent decisions faced may relate to events in the client’s life or may be more technical or could relate to market issues that sit in the financial planner’s knowledge base.  It’s fair to say, clients have better things to be doing with their time than trying to understand and tackle these issues alone.

Some years may be quite uneventful, while others are momentous.  In the former, not much may appear to happen, but that does not diminish the value of the financial planner, who is – behind the scenes – constantly on the lookout for issue that may threaten the successful outcome of the plan, or ways in which it can be refined.  At times of crisis, understanding the issues faced, finding a solution that makes sense, facilitating decisions that need to be made and having the fortitude to execute under pressure, is where great financial planners come into their own.

Long life, death and immortality!

There are also some more subtle areas of the value of a long-term relationship with a trusted financial planner.  For many people, living longer is a two-edged sword.  On the upside, we can all now expect to live materially longer than our grandparents’ generation.  On the downside, we also know that with longevity comes attendant health and financial challenges – long-term health care costs are rising rapidly and simply knowing that they can be met is a great comfort to many.

A financial planner, who knows the family and their financial circumstances well, is well-placed to provide advice, support and to facilitate the financial consequences of the new change in circumstances, when it is needed.

Many clients, often one of a couple who takes more interest in the finances than the other, worry about what will happen to their partner on their death.  Having a trusted financial planner (and an up-to-date plan), allows them to be confident that, in the event of their death, their partner will be well cared for financially and that their affairs are in order.   Administering an estate and applying for confirmation too, is a far easier process when everything is organised.

Most people would like to feel that they will, in some way, leave behind a lasting legacy.  For some, that can mean spending time and money supporting their philanthropic works and for others it may mean passing on wealth from one generation to the next.  The Pension Schemes Act 2015 created the opportunity to pass on wealth to future generations in a tax effective manner, for example.  Again, financial planners can play an important role in helping clients to make decisions surrounding such issues.

In conclusion

It is easy to forget when you meet with your financial planner for your annual Progress Meeting that the scope and value of the relationship is far deeper and more important than worrying about the 12-month market noise that has resulted in the value of your portfolio (pensions and investments) going up and down, or the fact that neither your portfolio nor the plan has changed much.

Meeting your lifestyle and financial goals, feeling confident in the future and having the time to enjoy the opportunities that your money provides you, your family and your community are what really matter.

Perhaps, contentment and being less anxious about tomorrow, is the goal, consequence and value of proper financial planning.

 

 

Top 10 tips for surviving inevitable market falls

By | News & Views | No Comments

Although we previously considered these top 10 tips for surviving market falls, we feel it is worth revisiting them as they can’t be overstated.

When it comes to investing, it’s worth stressing that just as turbulence is a characteristic of flying, volatility is a characteristic of capital markets. Market falls and therefore a fall in the value of your portfolio are inevitable – your portfolio might include a personal pension, stocks & shares ISA and a general investment account.

Market falls can often be alarming and at an unexpected degree.  The last bear market (when share prices are falling), saw the S&P 500 Index (American stock market index based on the market capitalisations of 500 large companies),peak on 28thSeptember 2018 but fall 20% by Christmas Eve – other global indices fell by similar amounts.  As investors, we should expect further falls however, when and at what magnitude, no-one knows so as a client of Wells Gibson, remembering the following should help:

  1. Embrace the uncertainty of markets – that’s what delivers you with strong, long-term returns.
  2. Don’t look at your portfolio too often. Once a year is more than enough.
  3. Accept that you cannot time when to be in and out of markets – it is simply not possible. Resign yourself to the fact.  Hindsight prophecies – ‘I knew the market was going to crash’– are not allowed.  Time in the market is what counts, not timing the market!
  4. If markets have fallen, remember that you still own everything you did before (the same, lower-risk, bond holdings and the same higher-risk shares in the same companies).
  5. A fall does not turn into a loss unless you sell your investments at the wrong time. If you don’t need the money, why would you sell?
  6. Falls in the markets and recoveries to previous highs are likely to sit well inside your long-term investment horizon, in other words, when you need your money.
  7. The balance between your lower-risk, defensive assets (high quality bonds) and higher-risk, growth assets (equities / shares) was established by Wells Gibson to make sure that you can withstand temporary falls in the value of your portfolio, both emotionally and financially, and that your portfolio has sufficient growth assets to deliver the returns needed to fund your longer-term financial goals.
  8. Be confident that your (boring) defensive assets will come into their own, protecting your portfolio from some of equity market falls. Be confident that you have many investment eggs held in several different baskets.
  9. If you are taking an income from your portfolio, remember that if equities have fallen in value, you will be taking your income from your bonds, not selling equities when they are lower value.
  10. Last and by no means least, we are available to talk to you at any time and as your wealth partner, we will urge you to stay the course and be a source of fortitude, patience and discipline. In all likelihood we will advise you to sell bonds and buy equities, just when you feel like doing the opposite.

A ‘set-and-forget’ investment approach? Absolutely not!

By | News & Views | No Comments

Wells Gibson’s systematic, evidence-based approach to investing often results in very little activity in our clients’ portfolios.  However, it would be wrong to think that this is the result of a ‘set-and-forget’strategy and the Wells Gibson Investment Committee would refute such a suggestion.  Considerable effort goes on behind the scenes to allow this state of calm consistency to exist.  The fortitude and discipline to deliver ‘not much needs to be done to your portfolio except for rebalancing’advice, comes from a rigorous process of ongoing challenge to the status quo.

The broad terms of reference of the Wells Gibson Investment Committee are set out below:

Manage risks over time

  • The Wells Gibson Investment Committee is responsible for the oversight of the risk in portfolios and the wider investment process.Meetings are regular and minutes are taken, which include all action points to be followed up on. Third-party inputs and guest members – such as Albion Strategic Consulting – provide independent insight and challenge.

 Challenge the process

  • The investment process at Wells Gibson is driven by the latest empirical evidence and theory available. It is always open to challenge.  If new evidence suggests that doing things differently would be in our clients’ best interests, then we will revise our approach.  The investment process is evolutionary, but change is most likely to be slow and incremental.

Review the portfolio structure

  • The underlying characteristics of Wells Gibson’s client portfolios are reviewed, including performance and risk level attributes. Risks (asset class exposures) and their allocations within a portfolio are evaluated. Any issues are raised and resolved. Existing asset classes are reviewed alongside asset classes and risk factors that currently sit outside the portfolios.  Areas of interest are placed on a longer-term ‘watch’ list.

Review the current ‘best-in-class’ investment funds

  • The current funds are ‘best-in-class’ choices seeking to deliver the returns due to investors for taking specific market risks.Each fund has a role to play in a portfolio and its ability to deliver against this objective is regularly reviewed. Any fund-related issues are raised and resolved.

Screen for new funds and undertake appropriate due diligence

  • Although the current funds were recommended as ‘best-in-class’, new funds are regularly being launched. Tough screening criteria are in place against which new funds are judged.  New, potential ‘best-in-class’ funds face detailed due diligence and approval. They are included only when they make the grade.  Given the quality of the funds already in portfolios, the threshold for replacement is high, but not impossible for newer funds.

Reaffirm or revise the investment process

  • The Wells Gibson Investment Committee is accountable for reaffirming or revising the structure of client portfolios. Risk (asset) allocations and fund changes are approved by the Investment Committee.Any actions arising from portfolio revisions will be undertaken, after discussion with and agreement by clients.

The next time you open your latest valuation report, remember that despite the lack of activity on the surface, the Wells Gibson Investment Committee continues to paddle furiously behind the scenes to allow this be the case.

In the immortal words of the investment legend and author Charles Ellis, “In investing, activity is almost always in surplus.”  However, perhaps we should amend this slightly to, “In investing, activity is – except for the Investment Committee – almost always in surplus.’