HOW TO RETIRE AT 60

Investment & Wealth Advice


SO, YOU WANT TO RETIRE AT 60? HERE’S WHY YOU NEED A CASHFLOW PLAN

With the average lifespan lengthening and the age at which the state pension can be claimed rising slowly but steadily, retiring at the spritely age of 60 now seems achievable in a way that perhaps it didn’t a generation ago.

"If you want to down tools on your 60th birthday, then it will require careful preparation to ensure that you have enough money to sustain you comfortably during your retirement. A core part of this planning process is to create a cash flow plan," says David Stead, Senior Private Banker.

What is a cash flow plan, and why do you need one?

If early retirement is your goal, the solution may seem obvious - simply save as much as you can. However, while saving and investing is clearly vital, we all know that life is more complicated than that. For one thing, retirement is unlikely to be your only savings goal. Before then, you might also need to put aside funds for medium-term goals such as educating children, or moving to a new house. 

Your capacity to save and your need to spend will also vary according to which stage of life you are at. For example, it makes sense to take advantage of your peak earning years to put away as much for the future as possible. At other points, during the early years of childcare, for example, it may be necessary to draw down on existing savings.

Why an advisor can be worth their weight in gold

A cash flow plan acts as a kind of financial road map. It looks at your current assets, your likely future spending needs, and your financial goals (in this case, for example, retiring at 60 with sufficient funds to generate the desired income), and how different scenarios - from life events to investment returns – might impact on these plans.   

 

Taking advice can be helpful on two key fronts. Firstly, an experienced adviser, taking a holistic approach, will be able to guide you through the most tax-efficient ways to invest, and may well highlight opportunities or potential pitfalls that you had not considered. 

Secondly, on a more emotional level, regardless of how confident you are about the practicalities of investing and managing your own money, it can be difficult to step back and look at your situation objectively. Are you being realistic? And are all parties affected (your partner, potentially your offspring) on board with your plans? It can be very helpful to have an outsider as a dispassionate advisor in these circumstances. 

Ensure your retirement fund meets your goals

When it comes to ensuring sufficient income for retirement, a cash flow plan can help on several levels.

Firstly, it takes into consideration your likely spending over the course of your retirement. Just as our spending requirements change over our working lives, so retirement comes in stages – the newly retired might choose to spend some of their retirement pot on a once-in-a-lifetime trip abroad or other lifelong goals, whereas spending may settle down to more predictable patterns further into retirement. This enables you to take a more realistic view of how much you will need and when.  

Secondly, having a good understanding of how much income you need to generate will also help you to focus on how to go about it. Are you making use of your annual ISA and pension allowances? Do you or your partner have a defined benefit pension (rare outside the public sector) to rely on? What other sources of income might you have overlooked? Are equity release or downsizing to release money from your property worth considering, or are they impractical options? 

Thirdly, having a deeper understanding of your finances will help you to avoid the risk of saving too much, or accidentally incurring unexpected tax bills. That might sound odd, but the tax allowances around pensions have become far less generous in a relatively short space of time. The current pensions lifetime allowance (LTA) of just over £1m might sound more than enough, but in fact, it can be surprisingly easy to breach, as the recent problems experienced by doctors and other senior NHS staff have revealed. Having a deeper understanding of your position means you can channel your savings in the most efficient way – for example, you might favour your ISA over your pension if there is a risk of exceeding the LTA.   

Stay flexible

A cash flow plan can also help you to focus on the aspects of investing that you can control. The level of future returns cannot be guaranteed, and rules on pensions and other tax-efficient wrappers are also subject to change. However, there’s one thing that you can control at the point of investing, and that’s your cost of investing. The less it costs you to invest, the more money you retain, and the bigger the sum that will be compounding over time. 

There’s also the question of risk. Broadly speaking, risk goes hand in hand with return – the higher the return, the more risk you have to take. If you have a clear understanding of where you need to be financially, you can ensure that you are not taking more risk than necessary. If you already have enough to meet your needs, why invest in high-risk assets? 

A holistic cash flow plan will take all these factors into consideration and alert you to areas in which you may be overpaying or taking more risk than is necessary (or sensible), given your goals.   

Review regularly

Finally, always remember to review your cash flow plan regularly, particularly when your circumstances change. Life throws the unexpected - both positive and negative at us - and so plans can become outdated unless they are maintained. 

In all, if you want to meet your financial goals - whether that be early retirement or ensuring you leave a legacy for your heirs - a cash flow plan is an indispensable tool. Make sure you have one in place.  

Is it time for an independent investment review?

At Weatherbys Private bank, we offer investment advice.  When clients come to us looking to invest, we will occasionally recommend an active investment manager.  What we will always do is recommend to our client that they choose the solution which will keep costs down.  

For this reason, many clients find that a portfolio of tracker funds is the right option.  We help them create the right balance of tracker funds in their portfolio and then ensure that it doesn’t drift over time. And, true to the low cost philosophy, we don’t charge a penny for this service.

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Cash Flow Planning

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When it comes to planning for the future, most people tend to focus on one thing: building as much wealth as they can. This is vital, of course. If you want to meet your financial goals, then saving and investing wisely is absolutely fundamental.

The Weatherbys Investment & Wealth Advice service will help you build a cash flow plan to ensure sufficient income for life.

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Important information

The information contained in this article does not constitute financial advice or a personal recommendation.  Past performance is not a guide to future performance. The value of an investment and its income can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.