Routes to retirement: how to navigate your investment journey I FT

Today’s retirement savers have plenty of choices when it comes to funding their future – but everyone’s journey will be different. The FT’s Claer Barrett and a panel of industry experts explore how products such as pensions drawdown, annuities, Isas and equity release could be used in later life, and how financial advisers guide their clients through the process. Read more at

Has the pandemic caused you to rethink your retirement plans following a year of market volatility there’s still an uncertain outlook ahead making it even harder for today’s retirement savers to make plans for the future certainly the plunge in markets last spring was a rude awakening with so many more people keeping their pensions invested for longer via drawdown

Plans diversifying and learning how to manage volatility are important lessons we really hope that the highlights from the ft’s digital dialogues event about reinventing retirement will help you plan for your retirement journey in the future our panel of experts led by sir steve webb the former pensions minister will explore how paths to retirement are changing

And provide practical insight into managing the risks and using cash flow modelling to find an answer to the eternal question how much is enough to retire on whether you’re an individual saving for retirement or somebody working within the advisory profession you’ll enjoy this video and don’t forget there are dozens of free to read articles all about retirement on

Next act the ft’s retirement hub we’re still only beginning to see the start of what pension freedoms actually mean uh people perhaps in their late 50s making choices but what we don’t really know is what those choices should be later into retirement maybe buying an annuity in your 50s doesn’t make sense but perhaps you should do it in your 70s so i still

Think it’s it’s very early days uh is it gandhi or someone who’s asked what he thought about western civilization i thought it would be too early to say or something like that you know the venture freedom is very much new and then the pandemic comes on top of that and suddenly people who’ve been staying invested rather than buying an annuity or having a db

Pension much more exposed to the stock market than in the past i think there are a lot of lessons to be learned on even just on what’s happened this year in terms of diversification not overreacting to market swings and so on so we’re in a time of great change i don’t think we’re anywhere near a settled place yet retirement is no longer a particular birthday

Or a round number birthday your 60th or 65th that you may have been targeting when you first started work or expected because that’s what your work pension scheme have for more and more people it’s very much a transition and then it could be up to a 20-year transition from their mid-50s perhaps to their mid-70s as steve said perhaps culminating in buying an

Annuity so that’s the big change because it’s not a single point that they’re aiming at it’s a period of time and that period of time may be different economies the pandemic is an event that may come or other events if we look back 20 years we’ve had a financial crisis and a technology crash and then also different governments which may bring in different rules

So there’s a lot to manage in a 20-year process rather than just aiming for a single day most of the people i hear are worried about how they’re going to pay for their retirement it is a real panic and um especially those who are now facing redundancy they may have to become self-employed there’s no employer contribution it is really um bad news for an awful

Lot of people for millions of people there’s an awful lot of people going for either annuity or drawdown it seems there’s really really a bit of both and i think the pandemic has brought people’s chain or started to change people’s mindset a little bit the cash flow modeling has become much more popular and in fact commonplace with most advisor businesses and

Diversification has become far more important but also retirement income isn’t just about pensions it’s about all your assets in retirement whether that’s using your isis or your equity release or whatever to provide a an efficient and a regular stream of income but most important tax efficient uh as well as as well as secure let me give you a nice simple way

Of thinking about this what are you trying to achieve in retirement is maintaining your standards of living when you haven’t got a wage you don’t want to stop work and suddenly eating cat food yeah you want to almost not notice so what you have in retirement it’s got to relate to what you had in work and a rule of thumb is about two-thirds could be less could

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Be more but you know once you’ve stopped paid work you’re not paying that insurance anymore you may or may not have paid off your mortgage but let’s suppose you have you haven’t got travel to work cost child care costs so you don’t need the same amount so let’s say two-thirds national average wage for ram numbers is 27 000 a year and you’ll get one third of

That from the state so you can go on the website do you check your state pension thing and the answer is usually about 9 000 these days may vary but roughly 9 000 so that’s half of the 18 000 that you need you’re two-thirds so that other nine thousand has got to come from a pot and let’s assume you’re saving in a pot of money mentioned well how do you get nine

Thousand from a pot my rule of thumb here we go is a thousand pound of pot gives you a pound a week of income okay a thousand pound now that’s a sort of sort of annuity calculation so if you want nine thousand pound a year 180 pound a week that would imply a hundred and eighty thousand pound pots that’s my kind of fact-backing calculation so let’s say 200

000 for round numbers so so someone on an average wage is going to get a full state pension sort of needs two hundred thousand pot to have a decent standard in retirement so you can look at what you’ve already built up see what you’re short of if you’re in a workplace pension crucial crucial thing get what your employer will put in and in particular max out

On what your employer will put in because often the employer will put a minimum amount in but then if you put an extra pound in that’ll put an extra pound in and there is no investment advice better than take free money when it’s going i think that’s the key word volatility when we’re talking about retirement the the greatest risks are actually probably how

Long somebody lives and what future inflation might be because i’m sure they don’t plan to go back to work so they need to make sure what they’ve got we’ll cover them for this year and next year but also many years ahead and there is a trend that people underestimate their life expectancy or they look at life expectancy at birth rather than life expectancy at

Retirement age which is obviously a little bit older in terms of client experiences actually our clients found that things weren’t as bad as they perhaps feared the it’s a very scary pandemic the the news is very concerning but actually if you have a balanced portfolio you’re well diversified you shouldn’t have suffered huge losses even in march and april and

If you are diversified as nick said across countries you maybe haven’t done too poorly some of this is easier to say when markets have largely recovered but it is a good reminder about having cash and as low as cash interest rates are to have a year or maybe two in cash to cover a withdrawal that you don’t have to touch your portfolio you don’t have to draw on

Assets that may have fallen just shows how important that is and to think of cashes and insurance against these kind of events not just an asset with a low return when clients look for advisors they rarely look for somebody to manage their behaviors or control their emotions that’s not what they type into google but it is often what they need most and what

They value most when they’ve worked with an advisor a lot of people are just stopping paying their pension contributions because they say i i can’t budget for it and i wish there was more than pension wise where people could have a general education to get their budget sorted so that they can still pay into a pension so they can look at what they might get

They don’t understand the charges they don’t understand what an influence the charges they are are paying on their pension contributions are on the final result um it it can be mega differences they don’t understand that if they take their pen a pension early that and then get back into work that they are limited with only putting four thousand a year into their

Pension so they’ve really scuppered their retirement income there’s so many it’s so complicated now if only we had a general well financial education but a general pensions education that answered all the basic points it used to be a small booklet that said you retire at this age you’ll get two-thirds of your income you died now people really are lost we

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Use cash flow modeling in two main ways one when we first take on clients who are looking ahead to their retirement and what we want to make sure is that we know what assets they’ve got we know what incomes they’ve got but most importantly what retirement they have planned is understanding what they’ve been looking forward to what they’ve perhaps been missing

Out on who they want to help and perhaps when that will be so there’s a lot to factor in so it’s quite a personal discussion first but then the cashflow modeling comes in to look at okay what do we need to do to achieve that and what are the risks and what are the assumptions so we make some assumptions about whether they’ll keep working whether they’ll get

Pay rises what the growth rate of the investments might be and what inflation is we tend to be on the pessimistic side because if you’re too bullish there’s nothing you can do when you get to retirement if it’s gone wrong so we are a little bit cautious and we also then look at what if what if something goes wrong we didn’t quite forecast a pandemic but what

If someone loses their job because of illness what if someone’s business fails earlier than they expected to sell it perhaps so we’re looking at the risks to their plan once in retirement we’re looking to make sure that the money they’re drawing is going to last and how long they may live and and is it sustainable so it’s a very good tool uh it’s not um factual

It’s a guide and it’s an assumption but it’s a very good tool to see whether people are on track and for some to know whether they can finally retire and they’ve got enough to and they can choose to keep working if they wish to i think you can alter plans but i think the key to cash flow planning is is working out what your guaranteed or uh bills your commitments

Your must-haves the essentials and making sure those are covered in some form of insurances or secure income so maybe to maybe you’ll have to take the income from the cash fund that you we were talking about earlier but being able to to split those down really does start helping the advisor work better with the the client the client starts opening up and

Stuff talking about different things they may well have forgotten they’ve got this policy or that policy it’s a really good way of turning the traditional fact find into a very detailed plan and that yeah is fine for the as soon as you set it up but it will change as you get these global events but it really makes it very easy for the advisor to explain the

Recommendations and sometimes the recommendation almost comes out of the cash flow so it’s a really really good really good tool and i would encourage everybody to have a go themselves or speak to their advisor and do it because it really does a a way of understanding your financial position much more and whether that means you need to commit more um or cut

Down it’s it’s it’s a really really clever way and then that come comes on to the tax efficiency as well um there’s no point in having huge amounts of wealth if you end up giving half of it to the tax man um and we have seen plenty of people access their pensions in one lab some paying 40 45 tax um which is just a real shame because i’m sure people wouldn’t

Do that deliberately it’s just they’ve seen the access to is available for the fund and they’ve taken it um and haven’t taken advice or haven’t gone to to money one yeah i think the key word is for me and when i work with our clients is cash flow rather than necessarily income having worked maybe for 40 or 50 years we’ve probably been driven by the income we

Earn because we receive that pay or dividend from our business and then we pay for our lifestyle but actually for a lot of people when they enter retirement it’s a withdrawing cash flow generated from their assets so it’s not necessarily the rental income on the buy to let it’s selling the buy to let because though the proceeds will fund the next five years of

Retirement or it’s gradually withdrawing the isa the actual capital maybe rather than the income it generates so you talked about the dividends suddenly stopping this year if you’re relying on dividends or you’re relying on bank interest then there’s no way you can really go if that is zero or stopped so it’s very much seeing your total wealth as a pot and then

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How you draw that cash and so a lot of the work i do is the sequence of that income what’s the right money to take first how do we maybe reduce risk how do we maybe keep assets inside or outside the estate because it could be that for a lot of people their pensions become something that’s a legacy they pass on but they spend the money that they have in their

Isis to fund their retirement and that can be quite jarring for somebody who’s looked at their pension for 30 years and expected that’s how they’ll spend their retirement when it comes to things like products annuities then that’s very much about making sure you’ve got the certainty that nick touched on earlier is if when you first enter retirement you want to

Make sure that your your certain bills are covered that even if investments you’ve got go wrong you will still be okay or as steve said earlier maybe at the toward the end of life when you no longer want to worry about your investments you don’t want to keep meeting with an advisor you just want to secure your income for the rest of your life and annuities are

A good time to do that it’s also remembering when state pension comes in so if you’re retiring in your 50s it could be 10 years until your state pension comes in so maybe you need something on a temporary basis until that comes in at 66 or 7 or 8. the context obviously as a chancellor has a huge budget deficit to phil and a manifesto saying he won’t raise

The headline rates of income tax insurance and vat so where’s he going to look he’s going to look at wealth taxes he’s going to look at tax relief so i think there is no doubt that these are on i seem to recall every budget every spending review we would start in a government department with a long list and you can be darn sure these sorts of things are on the

Long lists so when you’re reading the newspapers that the treasury is considering well of course they are because they’re always on the long list in terms of specifics the inheritance tax and all the treatment of pensions on death that george osborne brought in could easily be reversed i think it was quite surprising when he did it it’s a perk a few people

Would understand it it wouldn’t be yeah it wouldn’t be marching down why at all with placards demanding the reinstatement of favorable tax treatment for pensions on death you know so i think that is time limited that could end um in terms of tax relief more generally i mean we always see you know they’re going to abolish higher relief and scrap tickets with

Tax recash and the politics of it is pretty grim because to raise serious money you’re taking thousands of pounds of millions of people i think the best guess would be salami slicing which is what we’ve seen in the last decade so they don’t do something wholesale about kappa limit here shave something off there so on tattoo cash you know be astonishing if they

Just abolished tax in cash but they might say from now on you can’t add to the pot more than so much a year or it’s capped at this figure or you know the annual allowance can only be carried forward one year not three you know so an awful lot of kind of needy stuff that the public would switch off during the budget statement but mysteriously raised a billion

Here and a billionaire that would be my best guess i really hope that you enjoyed watching the highlights from our event and remember there really are as many different routes to retirement nowadays as there are people retiring everybody’s own personal journey is going to be somewhat different from the next person’s but lots of tips and practical advice there

From the experts to take away now if you need a little bit more inspiration then don’t forget you can go to the next act the ft’s free retirement hub where you can access a wealth of information and free to read online articles about everything from how to manage your assets after a divorce to where to find a financial advisor see you back here soon you

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Routes to retirement: how to navigate your investment journey I FT By Financial Times

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