HOW TO RELAX IN RETIREMENT

Investment & Wealth Advice




RELAX IN RETIREMENT AND MAXIMISE YOUR LEGACY WITH A CASH FLOW PLAN

Cash flow planning is an indispensable tool when it comes to investing for retirement. By working with an adviser to create a financial road map that projects your income and outgoings across a range of scenarios and potential life events, you can plan ahead with more certainty and take early action to tackle issues that might hold you back from achieving your financial goals.

However, cash flow planning is also critical at retirement age and beyond. During our working years, the key financial events and milestones may seem obvious: buying a home, saving for children’s education, and putting money away for the day that we can finally say goodbye to the office for good. 

​Yet our retirement years are not one long continuum of predictable spending requirements. Spending during retirement often spikes in the early years, perhaps to cover long-desired travel ambitions or even a move abroad. At some point, helping to fund the education of grandchildren may be a goal. And of course, unpleasant though it may be to consider, it’s wise to make provision for higher healthcare costs in the later years.

Make sure you don't run out of money

"Post-retirement cashflow planning involves mapping out these scenarios, which has two main benefits. On the one hand, it gives a solid overview of how much income will be required to maintain your lifestyle during retirement, as well as highlighting potential shortfalls under various investment return scenarios, enabling preventative action to be taken early on" says Rob Ball, Senior Private Banker.

This is crucial – most of us are rightly concerned about the risk of running out of money during retirement. The move away from near-automatic annuitisation means that retirees have both more freedom and more responsibility for managing their own finances.

Most of us will remain exposed to the ups and downs of financial markets for a longer period of time, and rule-of-thumb assumptions about “safe” drawdown levels may not be as useful in our era of ultra-low interest rates. 

As a result, thorough scenario planning is vital. Where will your income be coming from? Are your various pots working as hard for you as they could be? Are you paying more in fees for your investments than you need to be? Are you making full use of your annual tax allowances?

Maximising your legacy

That said, it’s also possible to be too cautious. And that’s where the other big benefit of post-retirement cashflow planning comes in. It also makes it clear where your existing resources are sufficient, allowing you to consider planning for other things, including maximising your legacy by reducing any potential inheritance tax (IHT) liability.

While IHT is only incurred by a small percentage of estates (less than 5% according to the most recent HMRC data available), this proportion has steadily grown since 2009/10, partly due to the rapid rise in house prices (particularly in the southeast of England) and partly because the IHT threshold has not kept pace with the rate of asset price inflation. Meanwhile, the tax take from IHT hit a record £5.4bn in the 2018/19 tax year, and it seems unlikely that this will be the last such record year. So it makes sense to look at ways to minimise any foreseeable liability.  

For example, one core aspect of IHT planning is gifting. An individual can make gifts of any size out of current income, and it will fall outside of their estate for IHT purposes as long as it can be demonstrated that the gifter’s standard of living remains unaffected. Without a cash flow plan, it can be difficult to gauge how much income is surplus to requirements.

Which investment pot should you access first?

It’s also important to consider the source of retirement income. On retirement, many of us will have a range of income sources: the state pension, perhaps a defined benefit (or final salary) pension, individual savings accounts (ISAs), and general investment accounts, alongside any defined contribution pension saved into over the years. 

A key part of cash flow planning is to make sure that those pots are accessed in the most effective manner. For example, under current legislation (which is of course, subject to change), defined contribution pensions are a very useful vehicle for legacy planning, because unlike ISAs, they can be passed onto heirs free of IHT. As a result, income in retirement would ideally be drawn from non-pension savings and investments, with the pension left untouched until either the money is required or until it can be passed on to any heirs. 

There are many more benefits to cash flow planning, but perhaps the key one is this: in retirement, the last thing you want to be worrying about is money. Establishing a cash flow plan and reviewing it regularly is one of the best ways to go about ensuring that you can achieve that particular financial goal.

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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THE IMPORTANCE OF CASH FLOW PLANNING

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.