Professional financial advice is important at every stage of your life, from helping you through university to buying your first home and eventually helping you to think about the wealth you will leave behind. And yet many Brits could be making a huge mistake when it comes to post-retirement planning.
Recent research published in Money Marketing suggests that nearly half of those who have retired since 2015 haven’t, and don’t plan to, visit a professional financial adviser in retirement.
This is worrying for many reasons, not least because the hard work of managing your finances doesn’t stop the moment you retire. In fact, 2015 marked the introduction of Pension Freedoms legislation (or “pension flexibility”), which has made pension income advice more important than ever.
Here are just five reasons why you should continue to seek financial advice to manage your pension income.
1. Your expenditure in retirement won’t be regular
Once you retire and choose not to take pension advice, you’re on your own. You’ll need to budget with your retirement income for the rest of your life, and that won’t be easy.
The first thing to remember is that retirement expenditure isn’t regular. Instead, it is highly likely to fluctuate.
You may have heard of the “retirement smile”. A simple smile-shaped curve, it shows how your expenditure is likely to be higher in the early “active” years of your retirement.
In the years after you retire, you’ll hopefully be in good health and have the time and energy to make big purchases or indulge in one-off luxuries. This might include house renovations or world travel.
As your retirement continues, you’ll likely find that your expenditure begins to slow. You might have become less active or completed your retirement bucket list.
The curve begins to rise again when the issue of later-life care rears its head. If you’re planning to retire without advice, you’ll need to be sure you have the money for care put aside, as well as a contingency to cover what happens to the money if the need doesn’t arise.
2. Pension flexibility makes budgeting harder
The introduction of Pension Freedoms legislation made budgeting much more difficult. Rather than the stable, known income of an annuity, retirees were able to take one-off lump sums and manage their own regular income through flexi-access drawdown.
Whereas an annuity is designed to provide a regular income for the rest of your life, if you spend your lump sum or take too much in drawdown, you could run out of money when you need it most.
The recent Money Marketing report states that while 47% of those who have retired since 2015 won’t be seeking advice, 43% of those aged 55 to 64 regret their retirement decisions. This compares to just 29% of retirees over-65, who are likely to have retired pre-Pension Freedoms.
3. Market fluctuations can affect the income you receive
As with your retirement expenditure, your income could fluctuate too. But not always in the way you expect.
Flexibility allows you to withdraw income as and when you need it but it’s important to remember that with drawdown, your unused pot remains invested. This means it is subject to market fluctuations and so too are the withdrawals you make.
Selling a set number of invested units when markets are low won’t provide the same income as when markets improve. You could find you sell more units than you anticipated and run out of money quicker if you don’t pay close attention. Our professional and expert advice could prove vital here.
4. You’ll need to consider your life expectancy
Financial planning is a long-term proposition that considers the wealth and goals you have throughout your life. Regular reviews then ensure that you remain on track to meet your goals, whatever the intervening decades throw up.
UK life expectancy for those aged 65 in 2020 currently stands at 19.7 years for males and 22 years for females. With the minimum retirement age currently 55 (rising to 57 in 2028), your retirement could last for 30 years or more.
Three decades is a long time to manage your money without seeking professional advice and running out of money could mean you need to return to work or change your lifestyle late in life.
5. Estate planning is complicated and has huge implications
Financial planning isn’t only concerned with the money you have to spend. There’ll come a point when you want to start thinking about the wealth you leave behind.
Tax-efficient estate planning is complicated and with Inheritance Tax (IHT) payable at 40% on wealth that exceeds the IHT thresholds, the implications for your loved ones could be huge.
From ensuring you have a will in place to managing unused pension wealth and putting trusts in place, these complicated and often legally binding documents require expert knowledge. This is especially true in light of changing legislation and rules, whether to the nil-rate and residence nil-rate bands or the tax treatment of unused pension wealth.
If you are beginning to think about the legacy you’ll leave behind, be sure to contact us before you make any decisions.
Get in touch
At Boolers, we firmly believe that the 47% of post-Pension Freedoms retirees who aren’t seeking financial advice are making a costly mistake.
Expert advice is crucial at all stages of your life and the hard work certainly doesn’t stop once your career ends. If you would like to discuss any aspect of your retirement or your long-term financial plans, please contact us today.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
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