How to never run out of money in retirement

A retiree’s greatest fear may well be outliving her savings. Unfortunately, more than 28% of retirees across the country currently face this harsh reality (Rozi Jones, Financial Reporter, 13th July 2018). According to the Pensions Policy Institute, uncertainties about life expectancy, inflation and expected returns on investments make retirement planning too complex for the ordinary saver. With rising life expectancy and record-low interest rates, these complexities are magnified.

Furthermore, recently introduced pension freedoms rules mean millions of people taking up to 100% of their defined contribution pension savings at retirement could be at increased risk of outliving their pension pots (Sarah O'Grady, Express, Apr 13, 2018).

With this in mind, savers need to start considering ways to sustain their retirement nest eggs for longer. Here are some of the ways you can outlive your savings:

Test-drive your budget

Absolutely nothing beats practical experience. Your expectations of retired life could change if you take a few months to live on the amount of money you’ve chalked into your budget. Testing your assumptions will help you make your long-term plan more realistic.

Make realistic assumptions.

Another key pillar of effective retirement planning is to make realistic assumptions. Take the time to objectively study your country’s economic conditions, your household expenses, and the basic expectations of your loved ones. Always assume your assets will earn the average rate of return and inflation will gradually erode your spending power.

The best way to make your plan more realistic is to build in a margin of safety with each assumption. This could simply mean expecting less than average returns and more than average expenses over a long time horizon. In other words, assume inflation will be higher than it is now (2.7%), you’ll live longer than the average person (82.9 years for women and 79.2 for men), and you’ll earn less on savings than retirees do at the moment (3% to 4% in income funds).

Consider the tax bills

Prematurely withdrawing cash from your retirement account negatively impacts your finances in three critical ways - it shrinks your nest eggs right away, reduces the effects of long-term compounding, and may have tax implications. Only the first quarter of any sum you withdraw will be tax-free, with the remaining amount taxed at your individual marginal rate. These one time tax bills can have amplified effects on your retirement.

Have a plan B

As with any plan, a contingency is always a great idea. Consider ways to generate income in retirement such as renting out a bedroom temporarily, teaching young students the skills you picked up over the course of your career, or selling artwork online. Even marginally boosting your income in retirement could significantly increase your chances of never running out of money.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change


Your Retirement Plan May Be Missing This Critical Fail-safe

Every three minutes, another person in the UK develops dementia. The chances of mental illnesses tend to accelerate as people get older. The World Health organization (WHO, 12 December 2017) claims that 15% of people across the world aged over 60 have some symptoms of mental disorder.

Unfortunately, most people fail to account for this increased risk to mental health in retirement. Retirement plans are so focused on expected returns and draw downs that families and loved ones are left unprepared when an elderly person becomes mentally incapable of managing their estate.

By 2037, there could be as many as 9 million unpaid carers across the UK, many of whom will be unable to dip into their elderly friend or relative’s bank account to pay for their care (Harriet Meyer, the Guardian, 9 June 2013). A legal document that can prevent this terrible situation is known as a lasting power of attorney (LPA).

A LPA is a legal document where someone (while they still have mental capacity) nominates a trusted friend or relative to look after their affairs if they lose this capacity. Having an LPA in place can, for example, allow a loved one to adjust the investment choices of a retirement savings account, disinvest some of the investments to pay for immediate care, designate funds to a drawdown, adjust the level of income being drawn, or stop income payments altogether. The carer can also sell your property and pay your bills on your behalf. None of these would be possible for a third party without a LPA (

LPA don’t just have to be focused on finances. A special LPA can be created for health and welfare alone. This seperate document allows a third party to make decisions regarding daily routine (washing, dressing, eating), medical care, moving to a care home and deploying life-sustaining treatment.

A financial LPA doesn’t give a carer any rights over your health and welfare and vice versa.

The versatility and simplicity of the LPA makes it a powerful tool that deserves a spot on all retirement plans. This legal instrument is designed as a precautionary fail-safe, which means it is a lot easier to implement when the donor is healthy and has full mental capacity.  With this in mind, setting up a LPA should be done sooner rather than later. A Lasting power of attorney (LPA) in England and Wales has no legal standing until it is registered with the Office of the Public Guardian.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Planning for change....

Rules are rules – and as pension legislation constantly changes, all we can do is react to these changes and put in place planning to adapt.

The first important issue – is managing expectation. I assume that I will not get a state pension. If I do get anything, at any age it will be a bonus – and greatly enjoyed. But my focus is on building up my personal pension provision to work towards the pension income I would like when I reduce/stop work.

That said many do rely on the State pension. So what would it cost for those from 30 – 47 (who will be affected) to replace the index linked benefit they would lose in that year. As per the article, they will be down £10,000. The state pension currently is a flat rate of £159.55 per week (£8,296.60 per year) – this is for those with 35 years of working who have paid/been credited with sufficient National Insurance contributions.

The change will effect those born between 1970 and 1978 so what does a 47 year old have to save from now to replace it – to prepare for the change and ensure that they don’t have to work longer than they would like….£30 per month. That’s £1 a day (this is assuming 4% growth over 21 years)

Alternatively, what about saving £24, in a pension. This £24 ( 80p a day) will be grossed up to £30 with the tax relief offered on pension contributions (at 20%) much better being able to meet your goal while paying less. Even better is to stick with the £30 which is grossed up to £37.50 and have more! (Of course, please remember a pension is a long-term investment, the fund value may fluctuate and can go down and your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation!)

There are many things beyond our control but, with a small amount of planning, we can prepare for these changes. Never mind the daily coffee – put your 80p towards your retirement plan!


British Social Attitudes survey

Polls and surveys can give a guide to the general leanings of the group of people being represented. The survey behind this report was carried out between July and November last year. Attitudes to some of the topics covered might have changed since then.

Nevertheless, that pensions are no longer the top priority for extra welfare spending surprised me for two reasons: That pensions ever were the top priority; and that they were the top priority for 30 years over and above welfare spending on benefits for the disabled.

Retirement is a choice the majority of us have. Being disabled, surely, is not. Retirement is something one can plan for over a known number years. Again, not necessarily the case for those with a disability. Yes, we can pay for insurance and private healthcare that might mitigate against the effects of disability but not against a disability itself.

Although I accept that this survey might have asked questions specifically relating to welfare payments, we can plan not to have to depend on welfare in our retirement. The irony being, and a point alluded to in the report, that generally those with a greater ability to prepare have a lesser need for that welfare.

Contributing to building up a pension fund, whether deemed a “legal loophole” or a legitimate vehicle for tax and retirement planning, leads to lesser reliance on welfare.

According to another recent survey (MetLife’s “Real Pension Freedom: The Delivery Scorecard”), only 16% of over 55s found guidance from Pension Wise, TPAS and the Money Advice Service useful. Could this also be another indicator that pensions are on a down turn in the public eye?

I sense a busy time ahead for our new Pensions Minister, Guy Opperman, and hope that he plans for the future and helps us all to do the same.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Are you among the millions missing out on £650-a-year pension boost?

This is a great reminder to review your company pension contribution. Last week I was presenting to a room of employees and I asked "who is contributing the maximum?". Only one person said yes. Most didn't know and others had chosen to contribute the minimum. Now this was a very generous company. They double everything an employee pays in up to 4%. So if  4% is paid in, they pay in 8%. Buy one, get two free!!

The conversation then moved on to "why were people not paying in more?" and mostly it was because they didn't stop to think about it. I challenged everyone in the room to increase their pension contributions to the maximum. Will you take the challenge too?

A pension is a long-term investment. The fund value may fluctuate and can go down.

Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Past performance is not a reliable indicator of future performance.


Pension freedom crackdown: watchdog blocks firm from final salary transfers

FCA rules (at date of writing) state the starting assumption should be that a defined benefit pension transfer is not in the best interests of the client. Rightly so.

There are, however and as with all things, exceptions. If there weren’t, the FCA stance would be somewhat stronger and anyone found advising the transfer of a Defined Benefit scheme would likely be jumped on from a great height.

Those exceptions are, in my experience, usually down to an individual’s circumstances and requirements. A defined benefit scheme should not be looked upon as a pot of money that the individual holds but rather a deferred income as a result of working for a particular employer. There is little to no risk for the former employee that money won’t come their way. The risk is the sponsoring employer’s. Currently, however, larger sums than offered historically are being offered by schemes to transfer away hence the boom in this market.

Transferring away from a defined benefit scheme also transfers the risk to the individual.

If an individual is advised by a regulated and licenced adviser or firm there will, inevitably, be a charge for that advice regardless (usually) of whether the advice is to transfer or not. If the advice is to transfer for whatever reason or reasons, there is then the transactional element of the advice.The risk passing to the individual also needs to be managed. The quote from the article that people “…reported feeling they were being put under pressure to let advisers manage their money after a transfer…” suggests that they might not understand that risk or the relative merits of the original transfer.

My view is that advisers are ensuring that the advice given remains appropriate in the future and that any funds are protected and earmarked to provide a retirement income rather than used to buy, say, a Lamborghini.

Get advice regardless. Sadly there is one less firm from where you can get this advice.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Choosing a SIPP provider!

The past three years have been an interesting time for self-invested personal pension (SIPP) providers and the amount of providers in the ‘bespoke SIPP space’ is on the decline. The changes have been brought about by new capital adequacy rules (as of September 2016). In short, new (and positive!) rules for providers to protect clients to ensure that we don’t hear any more horror stories about clients investing in overseas property that doesn’t exist (as an example!). The market is changing – but what does that mean for me and my clients?

A lot of my work is bespoke pension planning which requires a self-invested pension scheme, for me it is simple. I will recommend the provider I think is most suitable for my clients and their circumstances and objectives. There are still plenty of them out there – and good ones at that. My choice is as with any recommendation:

Quality administration – people! I want to be able to pick up the phone and talk to someone who knows me and the planning I am achieving for my clients. A team that will add value, and use their initiative. Proactive.
Cost effectiveness - not the cheapest. A fair and clear charging structure which is easy to understand and good value.
Value add – technology & efficiency. The capacity to provide instant information and a firm moving with the times to meet client expectation.

Clients do not want the minutiae, it is my job to look under the bonnet and understand the provider I am recommending, my due-diligence on the business I choose to run my clients pension savings. But like anything, my choice is ultimately made on good old fashioned values; high quality administration, cost effectiveness and value added service

The SIPP market is contracting, but this drives competition which in turn allows great outcomes for clients – all positive in my eyes!

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.