Do you have a Retirement Strategy?
The new pension freedom gave us all far more choice in how we use our pension funds – including the freedom to make a complete disaster out of it. To try to stop that the Government introduced “guidance” for everyone at retirement. That may seem a good idea except that we feel it is too little too late. Why?
- Think about how much time you spent deciding where to invest your pension fund. At the time it was a few hundred pounds at most. As you approach retirement your fund is as large as it will ever be – do you put a proportionate amount of time reviewing the investments? Probably not. You should, as any falls in value will be difficult to make up in a relatively short period. That said, can you afford to play it safe?
- There are lots of options but all depend on what you plan to do at retirement. Automatic fund switching options are quite common in many pension schemes. These move the funds into Fixed Interest as you approach retirement. That’s great if you buy an annuity but could be a very bad move if you do not – or you do not retire when you expected to.
- Guidance is just that – guidance, not advice. The various guidance providers will give you information but even those providing face to face meeting will not be able to give advice. Why? Because they are not qualified to do so. We suspect that in many cases the guidance will be “get some advice”.
- Pensions are only part of your retirement strategy, what about ISA’s, other investments and even, in some cases, your mortgage?
- Successful retirement involves huge changes to your lifestyle and finances. It doesn’t just happen. It needs planning and preparation.
- Capital becomes less important. It’s far more about what income that capital can give you without eventually running out.
So what would we suggest?
Start looking ahead at least 5 years before you retire. These are often the years where you have the resources to make a difference. Mortgage is repaid, children are grown up and settled.
Take a good hard look at the reality of the situation. What income will you want? What assets have you got to provide that income?
The Grosvenor Wealth Management Solution.
We see this as a 5 step process.
- Stage 1 looks ahead to your retirement. How do you see your retirement, what do you want to do, how much income will that need? What assets have you got at the moment?
- Stage 2 looks at how much income you are likely to have. If you have £100,000 available what is a reasonable income? You could take £25,000 a year, but not for long. You have been used to pay rises – what about pay rises after you retire?
- Stage 3 creates a plan as to how you will achieve the income you want. Are you making best use of your current assets? Is there a shortfall? How can that shortfall be addressed?
- Stage 4 looks at an investment strategy which aims to achieve the returns you need within a level of risk you are comfortable with. To be absolutely honest, that’s not always possible (especially if you leave it late) but you need to get as close as you possibly can.
- Stage 5 is essential. Review on a regular basis. Go back to Stage 1. Has anything changed? How are the assets doing? Is the shortfall getting smaller? Are you getting more (or less) comfortable with some risk?
How much does it cost?
The days of financial advisers being paid by commission are (we are pleased to say) long gone. We now work on a fee basis. However, we understand that potential client’s do not want to pay a fee just to find out there is not much we can do to help. Therefore the Retirement Strategy is charged as follows:-
Stage 1 and 2 will provide a basis where we can assess whether you are likely to benefit from our services. We will therefore undertake these stages with you without any commitment to a fee.
Stage 3. This involves a report being prepared outlining the strategy we would recommend as you approach retirement. We charge a fee for this depending on how complex your circumstances are.
At that point you may wish to implement the recommendation yourself. If so that would be the end of our involvement unless you wished us to review your circumstances again at a later date.
We are more than happy to implement Stages 4 and 5 for you if you wish. If you choose to do so we will agree a fee basis with you before proceeding. Again this will depend on the complexity of your circumstances.