Planning for Retirement
What income can I safely withdraw from
Until the recent pension freedoms were announced, pension income options were very limited. For those that chose a traditional annuity the rate of return was set at outset and for clients in “drawdown” the government set maximum withdrawal rates.
Even with the old restrictions, some drawdown clients have done serious damage to their pension pots that will impact their future incomes.
The new rules have opened Pandora’s Box and unless managed carefully they will result in some clients running out of money. In Australia where flexibility has been available for some years, apparently, 25% run out of money at age 70 and 40% by age 75 due to unsustainable withdrawals.
Average life expectancy in the UK is now 83 males - 86 females. This is the overall average and for those that live in more affluent areas i.e. around here, the norm is 89 males - 93 females.
So what is a safe withdrawal percentage? William Bengan in 1994 calculated that 4% ignoring charges was relatively sustainable. This year an analysis by Morning Star reduced the rate to 2.5% (assumes 1% portfolio fee). In America income withdrawals are running at an astounding 8%! At this rate with no growth £100,000 disappears in 12 years
You need a large pension pot for 2.5% to generate a worthwhile income. Fortunately, most clients we meet have a variety of pensions and other capital assets, taking the pressure off the Drawdown plan as the sole means of providing income.
Planning is everything at the start of the retirement journey. If it is possible to guarantee clients essential living costs throug the use of other pensions such as company and state pensions and/or annuities, it can provide the freedom to manipulate the drawdown plan to suit their needs.
So what is a safe amount you can withdraw? Well there is no “safe” amount because any amount could be too much if your investments fail!
Lifestyles vary and how your other assets can interact with your drawdown pension will determine the optimum level of withdrawal for your personal circumstances. The optimum level will change as your circumstances and investment returns will alter throughout retirement, hence the need to review your finances regularly.
Retirement for most is an emotional experience; having a helping hand from an experienced IFA to guide you through the complex financial decisions initially and ongoing can take away the worry and let you concentrate on your retirement!
Ring Georgina or Steve on 01277 630873 if you want to find out more
Thinking and planning ahead - LPAs are an option
Running your own business comes with great
advantages; you call the shots and steer the business in the direction you
want. However, with the excitement of
growing your business comes responsibility and risk, which can be a burden.
Many people take out insurance policies, such as critical illness or key person insurance, to protect against losing key players in the business, but few consider what would happen if they themselves lost mental capacity through accident or illness? Who would make the decisions and ensure continuity?
In such circumstances, your family would have to manage your own personal finances, and are unlikely to want to run your business, even if they had the experience to do so. It’s possible that your family may not even have authority to make the type of decisions that could have a significant impact on your business finances.
Many people make a lasting power of attorney (LPA) to cover their own affairs should the worst happen, but few know that it is possible to put in place another LPA that deals with business decisions. You do not need to appoint the same attorney(s) to deal with both. The LPA for your business ensures that your family would not be burdened with running your business and can instead focus on your personal affairs, with the comfort and knowledge that the business will be dealt with by the right person.
This type of LPA is not just for use in these type of situations – it can be used at any time. For example, if you travel regularly as part of your job.
Although people are becoming more familiar with what an LPA is for, and the benefits it can bring, here at Birkett Long we still experience circumstances where an LPA could have meant the difference between the decline – or even the end – of a business, and its continued success. If you are a business owner, consider a business LPA. It will bring reassurance and a safety net to you and your family.
To find out more, contact Tim Ogle at Birkett Long on 01268 244144 or email firstname.lastname@example.org.