27 August 2020
When looking ahead to your retirement, do you have a vision of a life spent on cruises, eating out or would you prefer to keep working, perhaps part-time, throughout your retirement? Whatever the answer, says Brewin Dolphin, one of the UK’s leading wealth managers, it will form an important part of the conversation you have when deciding what pension pot you need, what age you will be able to retire, and how much you will need to set aside.
According to John Fletcher, financial planner at Brewin Dolphin, knowing what you want to do when you retire plays an important part when determining the required size of your pension pot. “The most important thing is to work out how much income you think you will need,” he says. “You will need to have an idea of what your retirement will look like and what income you will need to support that lifestyle and plan from there.”
John says that a financial planner from a reputable wealth manager will be able to help you to make a financial model of how much cash you will require. If you are nearing retirement, and are planning to stay in your existing house, or downsize, you will have an idea of what your bills will be – you may also decide to pay off your mortgage. Some people may also pay off the remainder of any mortgage using the tax-free element of their pension. He adds that this is generally a time of life when children have moved away from home and so many retirees have reduced expenditure because they are not paying for their children.
He explains: “If your bills are £1000 a month, and you have a discretionary spend of £500 a month, you may decide that you need around £2000 a month to fund your lifestyle throughout retirement. Based on a withdrawal rate of 4% a year, a pension pot of £750,000 could provide a net income of at least £24,000 which should meet the requirement. If you are in your early twenties, you could look to set aside £660 a month for 35 years1 to reach this fund. If you are older and nearer retirement, you could use other tax-free savings such as a cash or stocks and shares ISAs to help fund the income requirement.
Clients of Brewin Dolphin have access to an online calculator to help try to work out their expenditure and calculate how much time they need to save2. “It is always beneficial to have a face-to-face conversation with a wealth manager to try to work out a financial plan. However, online calculators are a good way to get an initial understanding of what you will require,” explains John.
Brewin Dolphin says that to preserve the capital while providing income to live on, retirees should aim to take a maximum of 4% of their overall pension, subject to the individual’s risk profile. However, for people who are not able to preserve the pension pot it is possible under flexi-access to take higher levels of income.
John says: “People have the option of taking the full 25% tax-free lump sum and then a taxable income from the remaining fund or they can take a combination of the tax-free cash – which can be phased over time – and taxable income. Under the flexi-access drawdown rules there is no limit on the amount people can withdraw but the length of the time the fund will last depends on the growth achieved.”
To illustrate how long a pension pot of £750,000 could last under flexi-access, if you were to take the full 25% tax-free lump sum of £187,500 at age 65 and an annual income of £39,000 then with an average growth rate of 5% the pension would last until you were 83 years old3.
Above all, says John, it is important to set aside as much money as you can afford, as soon as you can, and also try to have an idea of the lifestyle you need. He says: “People need to save as much as they can to build a pension fund during their working lives. The sooner they start to save the better as the longer a pension fund is invested the longer it has to benefit from tax-efficient growth and compounding of returns. There are various online calculators4 available that you can use to input the current level of saving, as well as future contributions and assumed growth rates to give you an idea of the fund you might have available in retirement.”
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel. +44 (0) 20 3201 3343
Anita Turland: anita.turland@brewin.co.uk / Tel: (0) 20 3201 4263
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
Camarco: brewin@camarco.co.uk / Tel: +44 (0)20 3757 4980
NOTES TO EDITORS
Disclaimers:
- The value of investments and any income from them can fall and you may get back less than you invested.
- The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.
- Past performance is not a guide to future performance.
- We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition, we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewin.co.uk.
- This information is for illustrative purposes only and is not intended as investment advice.
- No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
- The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
- Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
- Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444).
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £46.7* billion in total funds, it offers award-winning personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £40.6* billion on a discretionary basis.
Our intermediary business manages £14.2* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service.
In line with the premium we place on personal relationships, we’ve built a network of 33 offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
*as at 30th June 2020
1 Based on a projected growth rate of 5% a year.
2 https://brewindolphin.focus-solutions.co.uk/digital/profile.html?gt=calcsavg
3 According to ONS, 2017, life expectancy in the UK is 79.2 for men and 82.9 for women.
4 www.moneyadviceservice.org.uk/en/tools/pension-calculator