In Focus: Take Action Now For A Comfortable & Stress-Free Retirement
David Grant, Chartered Financial Planner at Pathfinder Private Wealth, explains why entrepreneurs and business owners must act now to secure a sustainable retirement income.
We often get caught up in the “right now”, too busy to stop and think about what might happen in five or ten years. But if we don’t, we could face a different retirement than we imagined.
Picture your retirement: holidaying abroad, enjoying quality time with family and friends, being free from financial pressures, and enjoying that lifestyle for the first year or two. However, without proper planning, your capital can quickly ebb away, and your income may not sustain a comfortable lifestyle for as long as you’d hoped. Many people underestimate the importance of retirement planning and delay taking action.
You may delay, but time will not. Retirement is a time to look forward to, but the decisions you make now will significantly impact your financial wellbeing. You may have some investments here or there and a few different pensions. You might not know how much you’ve got or where they are. I often assist clients who have lost track of their pensions and investments. If you’ve lost old paperwork, the good news is you usually don’t need it. But you must take action. When it comes to financial security and planning for retirement, ignorance is not bliss.
“You can be the wealthiest person in the world or the poorest street urchin. You’ve got the same amount of time and you can’t buy more of it”
Prompt action is essential for securing a prosperous future if you’re a business owner in your forties or your fifties.
Your retirement plan
The rules around pensions and savings are constantly evolving. Tax rates and reliefs often change when governments change. Here are 6 essential factors for you to consider:
General Election 2024?
There’s a strong chance we’ll see changes in Westminster soon. Whoever gets into power will be under pressure to raise money and plug the deepening hole in the public purse. When that happens, it could hit those who pay the greatest amount of tax the hardest.
Even if that doesn’t happen in the next four years, taking advantage of the and long-term plans, ensuring your financial strategies are on track to achieve your goals. I recommend reviewing your financial situation if you haven’t heard from your advisor for a while. You must know and understand your pension rights and options and any changes or updates to pension regulations that may affect your retirement planning.
The Power of Compounding
“Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it,” said Albert Einstein.
Compound interest is a powerful tool in financial and retirement planning. Compound interest is the process of earning interest on the principal amount and any previously earned interest. Over time, it can significantly boost the growth of your savings and investments. You can use compound interest and build a substantial retirement fund by saving and investing early. It is also a powerful tool for business owners in their 50s who want to accelerate their retirement savings growth. If you’re worried you’ve left it too late, there are still ways we can turbocharge your pension if we start now.
Changing pension regulations
The rules and regulations surrounding pensions are complex and evolve constantly. Indeed, the pension rules around lifetime allowance, tax free cash and pension death benefits are changing again on 6th April 2024. You must work with someone who understands them. By staying up-to-date, you can strategically plan your savings to maximise your income during retirement.
Haven’t got time to think about this? That’s your Financial Advisor’s job. A good advisor will regularly contact you to discuss and review your medium and long-term plans, ensuring your financial strategies are on track to achieve your goals. I recommend reviewing your financial situation if you haven’t heard from your advisor for a while. You must know and understand your pension rights and options and any changes or updates to pension regulations that may affect your retirement planning.
Tax Rates and Reliefs (and how they affect your retirement plans)
If you pay higher levels of tax, retirement planning becomes even more important. By using tax-efficient pension schemes and investments such as ISAs, VCTs, and EISs, you can take advantage of your available allowances and reliefs, reduce your income tax liability, possibly reclaim unused allowances and boost your retirement savings.
Have you carried out a ‘Lifeboat Drill’ recently?
What if something happened to you? Would your partner know what to do? Where is all your important documentation? Your Will and LPA?
Life assurance details (and hopefully the Trust information)? Pensions, savings, investments? Bank details, utility suppliers, household and vehicle insurance? Cloud accounts for photos, video, music and software? Who needs to be notified and when?
Every single day, there is a non-zero chance of something happening that could change everything. It’s important to be prepared, and it’s the responsible thing to do for your family. Everyone should conduct a ‘lifeboat drill’ and take action on the issues that need to be improved.
Further complications – Frozen allowances and tax thresholds
Frozen allowances and tax thresholds can reduce the income you receive now and in retirement. Since 2021/22 several tax allowances in the UK have been “frozen”, meaning they have not been increased in line with the cost of living. The most important of these is the Personal Tax Allowance (the amount that can be deducted from gross income before tax needs to be paid). The standard nil-rate band – the amount of your estate which can be passed on to your beneficiaries free from inheritance tax (IHT) after death – has been frozen at its current level (£325,000) since 2008/09.
The Chancellor of the Exchequer, Jeremy Hunt, recently announced these freezes would continue until 2027/28. Nor is there any guarantee the freeze will not be extended beyond April 2028 if circumstances change.
This “Freeze” has been accompanied by rising house prices, higher wages and rising inflation. Theoretically, the IHT threshold should have gone up to reflect these changes. If it had, it would currently stand at around £710,000.
We can expect earned incomes to continue rising in line with inflation during the years of the freeze and possibly faster due to labour market conditions. Thus, a higher proportion of your income will be subject to income tax due to freezing your Personal Tax Allowance, which will bring in proportionately more tax for the government.
A proactive Financial Advisor will look to ease your tax burden and adjust your financial strategy accordingly, mitigating the impact on your retirement income.
Most importantly, take advice.
As a Chartered Financial Planner, I can do the heavy lifting regarding your financial and retirement planning. I will create a bespoke financial plan based on your circumstances, goals and what’s important to you and the people you care about. I will also be on hand to regularly review and adjust your portfolio to ensure you achieve a sustainable retirement income and enjoy a comfortable and stress-free retirement.
For more information, contact David Grant at david.grant@sjpp.co.uk or call on 07879 481 483
SJP Approved: 18/03/2024
Pathfinder Private Wealth is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Pathfinder Private Wealth is a trading name of Grant Wealth Management Limited. Your journey to financial freedom can start here with Pathfinder Private Wealth Find out more and start your journey.
