By Craig Ritchie, Partner at GSB Wealth
Pension Awareness Week is the perfect opportunity to reflect on one of life’s most significant milestones: retirement. According to a survey by YouGov, many Brits are underprepared for retirement, with half feeling uncertain about achieving financial freedom once they stop working. A third of respondents shared a common fear of being unable to maintain their current lifestyle in retirement.
Whether clients are just starting out, midway through their career, or nearing retirement age, effective planning is key. Retirement isn’t just about age—it’s about securing a financial future and creating the lifestyle they want.
This article will assess eight top tips advisers can share for planning their clients’ retirement.
1. Understand Current Financial Position
The first step in any retirement plan for advisers with clients is taking stock of assets, liabilities, income, and expenses. A clear picture of a financial situation allows clients to set realistic retirement goals and identify gaps that need to be filled.
Begin by listing all clients financial assets, including savings, investments, property, and pensions. At the same time, note any debts or liabilities they need to address before retirement.
Knowing a current position also means understanding cash flow. Are they living within their means? Are they saving adequately? By assessing their financial situation, clients can determine how much they need to save and invest to maintain their desired lifestyle in retirement.
2. Set Clear Retirement Goals
Retirement means different things to different people. For some, it’s a chance to travel the world; for others, it’s the time to pursue hobbies, spend time with family, or volunteer for causes they care about. Setting clear retirement goals will help investors determine how much money they will need.
When setting goals with clients, consider the following:
· Desired Retirement Age: When is the plan to retire? The age of retirement will significantly impact how much is needed to save.
· Lifestyle Expectations: What kind of lifestyle do investors envision? Will they downsize their home, or do they plan to maintain their current living standard?
· Health Care Needs: Healthcare will likely become a more significant part of expenses as investors get older – factoring in these costs is paramount.
· Legacy Planning: Inheritance needs to be taken into account as soon as possible to plan for Inheritance Tax (IHT). By using tax-efficient vehicles such as trusts or life assurance policies, it can help mitigate IHT liabilities and ensure assets are passed on efficiently.
3. Maximise Pension Contributions
One of the most effective ways for clients to save for retirement is through a pension. In many countries, pensions offer tax advantages that make them a powerful tool for building retirement savings. Take full advantage of employer-sponsored pension schemes, especially if an employer matches contributions. This is essentially “free money” that can significantly boost a retirement fund.
Self-employed investors or if clients’ employers don’t offer a pension scheme, they should consider setting up a private pension. Regular contributions, even if they start small, can grow substantially over time, thanks to compound interest.
4. Diversify Investments
Relying solely on a pension may not be enough to secure a financially secure retirement for a client. Diversifying investments can provide additional income streams and protect against market volatility. Consider a mix of assets, including:
· Stocks and Bonds: These are traditional investment vehicles that offer growth potential and income.
· Real Estate: Investing in property can provide rental income and potential capital appreciation.
· Alternative Investments: Commodities, art, and other non-traditional investments can offer diversification benefits.
The key is to balance a portfolio based on risk tolerance, time horizon, and retirement goals.
5. Plan for Healthcare Costs
Healthcare is one of the most significant expenses in retirement, and it’s essential to plan for it early. Clients should consider purchasing health insurance or long-term care insurance to cover unexpected medical expenses. In addition, maintaining a healthy lifestyle can help reduce their healthcare costs in the long run.
It’s also worth clients exploring government programmes or benefits that may be available in retirement, such as the NHS or similar schemes in other countries.
6. Create a Withdrawal Strategy
Once a client retires, they will need a strategy for withdrawing money from retirement accounts. The client’s goal is to ensure that savings last throughout retirement while minimising taxes and penalties. Here are some strategies for advice clients to consider:
· The 4% Rule: This rule suggests that retirees can withdraw 4% of retirement savings each year without running out of money for at least 30 years.
· Required Minimum Distributions (RMDs): In some countries, retirees are required to start taking withdrawals from certain retirement accounts at a specific age. Investors need to make sure they understand the rules and plan accordingly.
· Bucket Strategy: Divide retirement savings into different “buckets” based on when the money is needed. For example, short-term, medium-term, and long-term needs.
A financial adviser can help create a withdrawal strategy that aligns with a client’s goals and minimises their tax burden.
7. Regularly Review and Adjust Plan
Life is unpredictable, and a retirement plan should be flexible enough to adapt to changes in circumstances. Clients should regularly review the plan to they are on track to meet their goals.
If clients experience significant life events, such as a job change, health issue, or market downturn, adjust the plan accordingly.
By following these steps, investors can create a roadmap to a secure and fulfilling retirement. Remember, the sooner investors start planning, the better prepared they will be to enjoy the next chapter of their life.
