Whether you’re taking your first steps in business or running one that’s nicely established, it’s never too soon to think long and hard about retirement. Or to be more specific, how to make it rich.
Let’s be clear, when I say rich, I’m not just talking about money. Sure, a pension of £1 million would be great, but it’s what you do with it that counts. And if you have great plans for retirement, would that even be enough?
Could you manage on a million?
It might seem like a ridiculous question, but actually, a pension pot of £1 million (much larger than most people have) won’t go that far. Let’s say you retire at 65 and use it to buy an inflation-linked annuity, with 50% of the income going to your spouse when you die, you’d only be taking home £26,478 per year – and that’s before tax.
Of course, with a pension pot of this size, it’s unlikely you’d buy an annuity, but it’s certainly food for thought. If living on little more than the national average wage doesn’t appeal to you, it’s time to get planning.
A richer life
When we talk to our clients about retirement, gone are the stereotypes of two old people sitting in the garden waiting for the grandchildren to visit. Today, retirement is likely to be more about embracing new opportunities, grabbing the bull by the horns and doing all the things you’ve never had time to do. It’s exciting, exhilarating – and maybe a little bit scary too!
But there’s no need to worry. With the right help and advice, you can start planning now, keeping your business on track and working towards a retirement that’s perfect for you and your family. Whether that’s travelling the world, investing in a new business, building a property portfolio or just spending your days on the golf course.
Is bigger better?
We know that pensions are a tax-efficient way of saving for retirement, but when you start to accumulate a large fund, it can also set you up for trouble ahead. And don’t forget, if you want to take money out of your business, there are other ways you can do it that might be equally as tax-efficient.
For people with defined contribution (DC) schemes, that’s Stakeholder Pensions, Personal Pensions and Self-Invested Pensions (SIPPs), the Lifetime Allowance currently stands at £1,055,000, but that’s been falling steadily since it was introduced at £1.8 million. Creep over the limit and there will be a nasty tax charge waiting for you. If you have a defined benefit scheme, also known as final salary pensions, then your allowance is usually 20 times your pension in the first year plus a tax-free lump sum.
Plan now, save tomorrow
Whether you’re on your way to building up a hefty pension or have only recently started paying contributions, it’s important to keep an eye on what’s happening with your pot. A good financial planner can check if you’re about to breach the Lifetime Allowance – or are likely to do so in the future. With the tax rate sitting at 55% if you take out a lump sum over the Lifetime Allowance, or 25% on top of your income tax bill if you take it as income, it’s a painful mistake to make – and one that’s completely avoidable.
Financial planning with integrity
We’ve talked a lot about pensions, but that’s only one way to build up an independent source of income once you’ve left the nine-to-five behind. Often investments, an inheritance, property, or the sale of a business will all contribute. The important thing is to get a clear understanding of how much money you’ll have, how long it’s likely to last – and how much fun you can have with it in the meantime!
Using financial forecasting, we help our clients look ahead, maybe ten, twenty or thirty years, getting a clear picture of what the future looks like. Then knowing that the retirement they want is within reach, the power is in their hands. Maybe retirement can come sooner than they thought, or maybe they can afford to live a little bit more? Perhaps, they realise there’s enough to pass on to their children and see the benefit of it now? Often, it’s just having the peace of mind that they can live life to the full and everything will be ok.
As we always say at Cordiner Wealth, the important thing is to make sure there’s money left over after the life has run out, and not life left over after the money has run out. It’s a simple mantra, but one that makes a lot of sense.
If you’d like to know more about how you can plan for your business, your life or for retirement, why not introduce yourself to Ben Cordiner at Cordiner Wealth by calling 0113 262 1242 or emailing him at firstname.lastname@example.org. He’ll be delighted to help you live the life you’ve always wanted.