|
Planning your Retirement
- Can
you live
on about £100 per week today?
(Weekly
State pension is £90.70 - Tax year 2008 /09)
That is what people without any other additional pension arrangements,
will receive from the State today.
Could you live on less than £100.00 per week?
It pays to start retirement planning early, as it get harder
later in life, leading to you having to contribute ever
larger sums from earned income, as the time line get shorter as you near
retirement age.
Why start early ?
Leaving it late can have an adverse affect of your standard
of living, at a time when, you are unable to earn a living - in retirement, and
will have to rely on the State to survive.
What is a Pension?
Simply put, a fund of money you have saved, that will enable
you to purchase a pension for life (Annuity), at it's most basic form.
Standard
Annuities (pensions) are currently based at around 7% of the fund value, for
people with no adverse medical conditions, and non-smokers. So, a fund
valued at £100,000 on retirement today could buy a pension for life of £7,000
pa.(£135.00 per week). This is a generalisation, but today it will ring true to
those who are having to purchase that annuity.
Income Drawdown
If you have a pension fund that is
more than £100,000 (as a minimum) you can take this route. You are allowed to 'drawdown'
a small amount of income, while the rest of the money stays invested. This is
useful if you have an alternative source of income and can afford to wait till
you are much older, before purchasing the annuity. You must remember that the
invested fund could go
down as well as up, depending on stockmarket conditions (greater risk).
So you can see, start saving early to grow
this fund is imperative, and the earlier you start the easier it is to
accumulate this lump sum. The amount you save is relevant to the fund value you
wish to achieve on retirement.
Is there any help?
Yes. The HM Revenue giver you tax relief on the money you contribute at Basic rate
(currently 2o%), and if you are a Higher rate tax payer, you can claim back the
balance (120%) through Self Assessment. So, in effect you will be getting 40% tax
relief (Higher rate tax payers only) on all contributions into a regulated Pension scheme.
As a
Basic Rate tax payer, you still get 20% tax relief on all up front
contributions..
Where else can you grow money by 20% up
front?
Nowhere. Except in the pension environment.
So, let's take an example:
You make a contribution of
£1,000.00
HM Revenue tax relief is
250.00
Total into your scheme is
£1,250.00
The Revenue returns all the income tax you
have suffered in the first place.
All growth within the fund is: Tax-free;
All income within the fund (Dividends) is also tax-free.
Even if you leave the contribution in cash you will have gained 20% before
charges.
Even with modest growth rate, the fund will grow and your target could be
achieved.
How much should you aim for ?
Generally, it is accepted that a pension of up to 75% of your current income
should be sufficient to allow you to retire without having to depend on the
State. However, the more you can get the more comfortable you will be in your
twilight years.
Example
You are currently earning £25,000 pa
Three quarters (75%) is £18,750 pa
State pension is currently £5,044 pa The shortfall is
therefore: £13,706 pa
Based on an Annuity rate of 7% pa the fund
value would have to be: £195,800 on retirement, to enable you to buy the
pension (Annuity) of £13,706 pa (in today's money)
To create a retirement fund of about
£225,000 over 25 years, you would have to save in the region of £7,000 every
year, assuming a growth rate of 2% pa. So, the cost over the period is £105,000
if you received 40% tax relief on your contributions.
Can you imagine how much
you would have to be saving per annum if the time line was just 15 years?
Where should you put your money?
Saving money is still saving money. So, we believe that sound investment
principals still apply. The tax relief is the icing on the cake. Use a Platform
(fund WRAP) that allows you to have access to the very best funds, and all the
various types of
accepted investment vehicles including Direct equities, and one with a Low
charging structure. Lastly, take professional advice in choosing the correct
asset allocation and asset class, to suit your risk profile and financial
objectives.
We also offer a quarterly valuation
service, and constant monitoring of the portfolio. This should ensure that your
plans are on track.
We specialise in advising and managing money for our clients...
For further information call us on:
01299 271471 or use the Contact
sheet
| 
