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Planning for retirement: this happy scene shows father, son and grandfather at a barbecue

How to plan for retirement in 5 to 10 years’ time

What does retirement mean to you? While some dread the prospect, others yearn to retire at 50 or even younger, and may be bursting with ideas for the future. Whatever our financial circumstances and aspirations for life after work, most of us want to lead the best life possible–without running out of money. For this reason, it’s essential to form a retirement strategy well in advance.

So, when should you start planning, and how should you go about it? We asked AJB Wealth’s Managing Director, Paul Willans. ‘Quite frankly, you can never be too soon,’ he advises. ‘Indeed, parents and grandparents are increasingly funding pensions for children, from birth. This can form part of the donor’s own tax planning.’ (See below)

Sadly, most of us don’t enjoy the positive impact of such early funding. Nonetheless, a strategy that encompasses detailed financial planning, investment management and risk mitigation will help set the scene for a satisfying retirement.


What are your retirement goals?

While this article addresses the financial planning aspects of retirement, the starting point is to consider the broader picture. Visualise how you’d like your post-work life to be. If you found great satisfaction in your work, how will you replicate this in retirement, for example? Whether it’s travelling the world, supporting your family or finding time for hobbies, it’s crucial to identify your retirement objectives. Your goals will help shape your financial strategies.


Evaluate your current financial situation

Understanding your current financial situation will give you a realistic idea of what you can expect in the future. At AJB Wealth, we use sophisticated cashflow modelling to bring all the data together and give a meaningful picture of what may lie ahead. Assumptions are made as to likely inflation levels, investment returns and life expectancy. We also consider potential crisis points, such as long-term care and stock market crashes.

‘Cashflow modelling is a powerful tool. It enables us to explore different scenarios and highlight possible shortfalls,’ says Willans. ‘It also provides a good insight into a client’s financial circumstances and where tax efficiency and investment returns can be improved. We’re able to take immediate positive action, and then review the plan every year to ensure that all remains on track. This takes the stress out of retirement planning for many people. ’


Identify your needs in retirement

Analysing your current expenses is an excellent starting point for building a picture of your financial needs in retirement. As mortgages are paid off and children become financially independent, many people find costs dropping. However, it’s prudent to set the bar high in terms of your needs.

Be sure to consider future and changing costs too. The potential cost of care in later life weighs on the minds of many.

By considering these matters five to ten years before retirement, it is still possible to make meaningful adjustments. This may mean making additional contributions now. Or perhaps restructuring your affairs to make your investment portfolio or pension plan more efficient.


Should you maximise pension contributions?

Until now, the lifetime allowance has limited the size of pension pot you can have without incurring extra tax charges. Currently set at £1,073,100, it will be abolished next month. This makes pension saving more attractive to higher earners. To fully benefit from tax advantages and employer contributions, it may make sense to maximize your pension contributions.

The annual allowance is the maximum you can contribute to your pension every year and is currently £60,000. That said, the allowance may be less for those earning more than £200,000, or who have taken money flexibly from their pension pot. However, it is possible to draw on unused allowances from the previous three years.


Pension planning and consolidation

If you have two or more pensions, you may want to consider consolidating them into a single pot. A self-invested personal pension (SIPP) can be easier to manage as well as providing added flexibility in retirement. There may also be potential for improved returns. Find out more in our earlier blog. A professional adviser can help ensure that your affairs are arranged in the most efficient manner.


Review your investments on a regular basis

A wealth manager will regularly review your situation and ensure that your portfolio is still tailored to your goals as you get closer to retirement. At three to five years before retirement, this is likely to mean reducing the risk of short-term fluctuations in the markets. This is particularly true for those wishing to buy an annuity (usually a guaranteed regular income for life). A portfolio manager will typically reduce the portion invested in equities, particularly small and medium sized companies, while increasing holdings in bonds and cash. Though it should be remembered that bonds, or even cash, are not risk-free.


Risk management and insurance

Consider whether you would benefit from products such as life insurance, health insurance, and long-term care insurance. For some insurance products, such as health insurance in the UK, it will be important to weigh up the cost versus risks and potential benefits.


Estate planning and planning for retirement

Your Will should be reviewed on a regular basis to take account of significant life changes and legislative updates. It’s also sensible to have a Lasting Power of Attorney (LPA) in place in case you are unable to make decisions at any point.

As well as ensuring that your wishes are carried out, it’s important that your affairs are arranged in the most efficient way from a tax and estate planning perspective. Read our article on how you might be able to reduce inheritance tax on your estate.


Pension saving for your children and grandchildren

Up to £3,600 can be contributed to a Junior Self-Invested Personal Pension for your children or grandchildren in the current year, and this benefits from tax relief at 20%. This means you can pay in up to £2,880 and the government will top it up by £720– even though the beneficiary is unlikely to pay tax.

‘While not the most exciting or cuddly gift, the positive impact of such early funding could make it the most valuable gift they ever receive,’ says Willans.

‘In addition, such funding need not be wholly altruistic. It can form part of the donor’s own tax planning. For example, such gifts can potentially reduce the size of the donor’s estate for inheritance tax purposes. They can also help with the loss of the personal allowance for those earning between £100,000 and £125,140 per year. Or help reduce or eliminate the high-income child benefit charge.’


Planning for retirement: when to seek professional help

After decades of making pension contributions, you are likely to have amassed a significant sum and may feel you would benefit from professional guidance to maximise what you have.

‘A wealth manger is well placed to offer personalised advice, tailored solutions, and ongoing support to navigate the complexities of retirement planning,’ says Willans. ‘However, it’s important to remember that your retirement date isn’t the end of your investment journey. The need for sound management continues in the decades after retirement.’


If you would like help with your retirement planning, including consolidating your pension, the team at AJB Wealth is well-placed to help. To arrange an initial, obligation-free consultation, please book a meeting, or call us on 01428 774 070.


Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice and this company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise, and, in the event of early encashment, you may receive less back than your original investment. Pension and tax rules can change and any benefits will depend on your personal circumstances.





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