Many people feel the Covid pandemic is threatening their retirement plans – Mark and Tina are a good example.
The impact of the crisis on job security and the stock market has left many of those looking to retire within 10 years questioning their plans. Some are choosing to work for longer or even forgetting about retirement for the time being.
Before you make such a decision, it is important to gain a clear understanding of your options by speaking to a financial planner who can provide specialist pension guidance. Mark and Tina found doing this helped them understand their position, and make changes for their desired retirement.
Mark (48) works as a Sales Director and Tina (47) as a Marketing Director. They have two children aged 16 and 17 and in private education. Due to the stressful nature of their roles, the couple intended to retire at 55, however both saw their pension values fall in March.
Although their jobs have been unaffected, they do not expect to receive any bonuses or salary increases until normality returns. Mark and Tina were worried about their plan to fund their children’s university fees, and their hope of retiring with financial security.
We met Mark and Tina on Zoom after a long-standing client referred them to us. We talked about what was important in their lives – their family, future, ambitions, and concerns. A key emphasis for them was to retire early if possible, A fellow director in Mark’s business had died aged 59. They were concerned about the impact of stress and wanted to “get out as early as we could to enjoy life”.
We then explored what they wanted from retirement. As Mark and Tina’s girls would be grown up, they wanted to travel extensively for the first few years of retirement. They were happy in their family home with no plans to move.
This discussion allowed us to build a picture of the income and capital they would need to reach their retirement goals.
After helping define the aspiration, we needed a plan to get there. We looked at Mark and Tina’s income, expenses, savings, protection and pensions. We established their attitude to investment risk.
We then used cashflow modelling software, which showed them how much money they could have in the future based on various scenarios. These included life without bonuses, salary increases, or one of them not being able to work.
We also factored in their expected spending in retirement, then looked at what age they could meet their goals. This showed us the retirement they wanted was in reach and they could achieve it with some sacrifices.
Although Mark and Tina were well-placed, the expected lack of bonuses will impact their retirement plans significantly. The cashflow modelling showed they would not achieve the retirement they dreamt of at age 55. However, they were happy to delay their retirement to age 58, as the modelling showed this would provide the lifestyle they wanted.
This adjustment tied in with a recent law change, which increased the age at which Mark and Tina can access their private pensions from 55 to 57. But that is still 10 years earlier than their state pension age.
It helped that working from home had reduced their stress. However, the modelling also showed they could consider reducing their hours nearer retirement.
Given the change to their target retirement age, we made the following recommendations to help them achieve the lifestyle they wanted.
Mark and Tina had built several pensions over their careers and were not aware how they were invested. We investigated each pension and found they had high charges, lacked investment choice, had underperformed, and had not been reviewed in over 15 years. By consolidating their pensions with one provider, they could see their pensions in one place, have them invested in line with their attitude to risk, and have performance monitored regularly.
Mark and Tina were paying the standard contributions to their employer pensions. We analysed their earnings to establish their pension annual allowances, which is a complex calculation. This showed they could both make additional contributions. As Tina’s taxable earnings were £110,000, we recommended she pay an extra £8,000 net a year into her pension. This would regain her full personal allowance, and the net cost would only be £4,000, creating a 60% tax relief.
Tina had accumulated £60,000 in cash ISAs in addition to their emergency savings. We recommended using that part of the cash ISA to make Tina’s additional pension contribution. This will ensure she retains her personal allowance on an annual basis and keep their cash flow constant. They could use the rest of the cash ISA to help fund their daughter’s university education.
These combined actions brought Mark and Tina’s desire for early retirement to life. Cashflow modelling helped them make the right decisions for their needs and goals. This gave them huge reassurance and a plan that they felt removed the stress of the last few months.
Mark and Tina were comforted that their pensions and investments would be working as hard as possible for them and monitored regularly. They were also reassured that they would not experience the roller-coaster ride in performance they saw in previous funds.
This planning gave them the confidence to start looking forward to retirement, safe in the knowledge their retirement income would last the rest of their lives.
It is important to discuss financial matters and review all your financial affairs regularly with a financial planner – from pensions to investments, wills, lasting powers of attorney and life policies in trust. You should do this with someone you can trust and seek specialist advice from where necessary. Had Mark and Tina consulted a financial planner regularly, they could have avoided much hardship, stress, and loss of control this year.
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