Helping clients to manage income in retirement is becoming more complex. There are more potential sources of income and greater options on how to access your retirement funds, as well as the unknown impact of future investment returns which may also impact the best laid plans.
Providing a subjective view
At Origen, we use cash flow modelling to help our clients assess how income and expenditure decisions may impact their long term savings decisions. We can also stress test these financial models to see how resilient future financial plans may be to the potential of a downturn in investment performance or a change in circumstances.
Being aware of what could happen provides perspective and also gives a sense check of realistic income needs throughout retirement. It also enables you to build a plan which takes account of other income flows which may become available at a later date, for example the State Pension or company pension benefits.
The value of advice
As qualified advisers, we remain informed on financial planning opportunities and changes in legislation which, are rarely as straightforward as they appear.
Some of the common misperceptions include:
• Underestimating how many years people are likely to spend in retirement. The Office for National Statistics (ONS) research expects a male aged 65 to live on average for over 18 years; this rises to over 20 years for a women of the same age. But it is important to remember that this is only an average, so retirement planning needs to take account of potentially living much longer.
• Not considering the long term outlook. The temptation to take a large lump sum from a retirement fund can have a significant impact on future income levels. Without the objective and considered view of advice, long term considerations can be missed which can then cause income difficulties later in retirement.
• Making hasty decisions. It is important to carefully consider any wider consequences of your decisions before you make them, as many are irreversible. For example, if you have a Defined Contribution (also known as a money purchase pension) and take the whole fund out as cash or indeed in particular types of income you will reduce your ability to make future contributions to money purchase pensions to just £4,000 each year.
The value of regular reviews
We aim to build long term relationships with our clients, so that we can review progress and assess how plans need to adapt to changes in circumstances or due to variations in investment performance.
Having regular reviews will help to reduce the risk of nasty surprises as we can continue to monitor how your pensions and investments can best meet your retirement income needs.
Our advice helps clients to make informed decisions and make them aware of long term consequences before making decisions. Cash flow modelling brings financial plans to life, providing a longer term picture, so that you can look ahead with confidence.
This article is for information only and is not to be taken as financial advice. This information is based on our understanding as at April 2019.
CA4271 Exp 10/19
