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How much should I be saving into my pension?

How much should I be saving into my pension?

This is a question that I get asked on a regular basis from people and the answer is, as with most financial questions, it depends. How annoying is that?! That there isn’t a clear answer to decide how much you should be putting into your pension. The answer is highly likely to be more than you are currently contributing.

There used to be a formula people used to calculate how much they wanted to get out of their pension when it came to retirement, and therefore thinking about how much your pension is likely to grow over that timeframe, you could work out how much to put in, and the same can be done now, but the main question is:

How much do you need / want in retirement? 

I am asked this a lot. How much will I need in retirement and the answer is that I do not know, that depends on you and your lifestyle. Many of my clients could retire today if they wanted to, however they would need to live in a mud hut in Peru, so what lifestyle are you currently living and how do you want to live when you no longer work? Look at your current spending and decide how much this will differ in the future. Will you have paid off your mortgage? Will you still have kids at home? Will you have lots more free time to go on holidays and spend money?

Now you can think about whether you will need £20K pa, £50K pa, £100 pa…

The other thing to think about is: what does retirement mean to you?

 Is it the traditional stereotype of growing old, playing golf and going on cruises having completely given up work at age 65, or do you have a different idea in mind? Some of my clients can never see themselves giving up work. It will change as they won’t be going in to do a 5 day a week 9-5 job, but they will still be doing something, whether that is non executive work or part time healing, whatever is your passion / skill, you may never decide to give it up. Or maybe you want to do something completely different, I would love to hear what that is.

When do you want to be able to stop earning money? When do you want to be able to live off your savings, whether this is pensions, ISAs, property, investments, (lottery winnings!!) or whatever, without fear of running out of money? And when will you have enough money saved that you can do so?

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Give me my State Pension now ?

Should I take my State Pension now?

The Government provides a State Pension.

The most you can currently get from the basic state pensions is £122.30 per week, which is £6,359.60 pa. Don’t get carried away on that!!

You can also get additional State pension to top this up depending on how much you have earned during your lifetime and whether or not you contracted out of the State Second Pension in years gone by.

Whatever you did, and however much you have earned, you will have a State Pension due to you when you retire (hopefully will still be there by the time I get there, when I’m 80. Me? Cynical?!)

Retirement piggy bank emailThe question is: When should you take it?

I have had a few clients ask me this recently and the answer, like most things in life is: it depends, especially if you are still working or have an income from elsewhere.

If you have reached State Retirement Age and the Government are offering to pay you your State Pension now, then why wouldn’t you take it? You are entitled to that money. It could be useful to pay for day to day things that you need, or additional things that you wouldn’t have bought otherwise. You could also use it to save into a personal pension and thus increasing your retirement savings and tax free cash amount to use at a later date. You could get taxed on this pension but it’s still more money than you were getting before, so does it matter?

However, you are offered the option to defer taking your State Pension and if you do so then you get more money when you do come to take it, so maybe it is better to go for this. Time travel is the only way for know for certain which option will work out better over time, but I have developed a healthy level of cynicism having been in this profession for over 16 years and so is a bird in the hand worth more than two in the bush?!

Only you can decide.

Push yourself

My friends and I did the half Tough Mudder in September and I loved it and I want to inspire you to push yourself and don’t just settle for what you are doing now.

My friends thought it would be fun to sign us all up for doing the half Tough Mudder. My friends are not very fit and don’t train like me at the gym, but they thought it would be fun and something to aim for, so we signed up, got the team t shirts, and turned up, not quite knowing what we had signed ourselves up for.

It turned out to be one of the best things I have ever done and I was disappointed when it was over. I could have gone around again, (but my friends refused!).

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What Next?
So now I have started training for the full Tough Mudder in Henley in May which is 10+ miles and over 20 obstacles with 500,000 litres of grade A mud and 40 tons of ice, not forgetting the electric eel where you get electrocuted!!

Why is this pushing myself you may ask? Not for the obvious reasons of being covered in mud and doing obstacles, as I love that, and have since being in the army cadets at school, but because of the running. I hate running! So now I have had to put that to one side and start training as I want to be able to do the full tough mudder. 10 miles is really far for me.

Happiness

This all goes towards spending my way to happiness. It is time with people that I love as it is a team activity and is definitely an experience that I will never forget.

What did you never dream of doing but with some thought and planning you could actually achieve?

Flat rate of pension relief?!

The lovely Chancellor, in all of his wisdom, is considering implementing a flat rate of tax relief for pensions. Therefore rather than the current system of 20% tax relief if you are a basic rate tax payer, 40% if you are a higher rate taxpayer and 45% if you are an additional rate taxpayer, everyone will get the same rate. No prizes for guessing that it will not be beneficial for higher rate taxpayers.

Who knows whether he will actually do it, but the rumours are that it will be implemented in his Budget, which is due on Wednesday 16th March and that it will be implemented straight away, leaving no time for a rush to fill your pensions before the rate of relief drops.

So, if you are considering putting any money into your pension and you are a higher rate or additional rate taxpayer, I would suggest that you looked at this sooner rather than later.

Now, the Chancellor may not make any changes, but he might, so I’m just pre-warning you. We will have to wait and see what he does on Budget Day. He hasn’t messed around with pensions for a few months now, so it must be time for another change!!

The Stock Market Is Going Crazy – What Shall I Do??

I have heard that 2016 is going to be a bad year for investment. We are going to spiral into another recession, possibly worse than the one in 2008, with the Chinese stock market continuing to drop like a stone and oil prices staying ridiculously low. But am I worried? No. Why, I hear you say?

People are always trying to predict what is going to happen with investments and a recent study showed that a monkey has just as much chance of guessing what is going to happen as a so called investment expert!

For the US, 22 strategists polled by the Wall Street Journal estimated an average increase for the S&P 500 of 8.2% for 2015. Their forecasts ranged from 2 to 14%. No-one picked a fall. As it turned out, the benchmark ended marginally lower for the year, so they were all wrong!

In the UK, a poll of 49 fund managers, traders and strategists published in early January 2015 forecast the FTSE 100 would be at 6,800 by mid-year and 7,000 points by year-end. As it turned out, the FTSE surpassed that year-end target by late April to hit a record high of 7103, before retracing to 6242 by year-end. Another fail for the ‘experts’!

It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. Even a stock like Apple, which for so many years kept going up as more and more people bought iPhones and iPads, disappointed some forecasters last year with a 4.6% decline.

In Australia, among the “Top Picks for 2015” published by one media outlet a year ago were such names as Woodside Petroleum, BHP Billiton, Origin Energy and Slater & Gordon, all of which suffered double-digit losses in the past year. Oops!

Setting your investment course based on someone’s stock picks or expectations for interest rates, the economy or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So the better option is stay broadly diversified and, with the help of an adviser, set an asset allocation that matches your own risk appetite, goals and circumstances, and stick with it, which is exactly what I do for my clients.

Of course, this doesn’t stop you or anyone else having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger is when you base your investment strategy on an opinion.

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If you really want some predictions, then here’s 10 that really will come true in 2016:

  1. Markets will go up some of the time and down some of the time.
  2. There will be unexpected news. Some of this will move prices.
  3. Acres of newsprint will be devoted to the likely path of interest rates.
  4. Acres more will speculate on China’s growth outlook.
  5. TV pundits will frequently and loudly debate short-term market direction.
  6. Some economies will strengthen. Others will weaken. These change year to year.
  7. Some companies will prosper. Others will falter. These change year to year.
  8. Parts of your portfolio will do better than other parts. We don’t know which.
  9. A new book will say the rules no longer work and everything has changed.
  10. Another new book will say nothing has really changed and the old rules still apply.

Start With What You Know

Proof that investment decisions can go either way, is always yelling at us from the pages of our papers as well as from the TV or radio. Indeed, just in the last few months, we’ve witnessed the financial downturn in China as well as oil, VW and Glencore hitting the headlines with unexpected and alarmingly dramatic changes in price. It’s probably fair to assume investors with exposure to assets such as these might well be licking their wounds and cherishing regrets. Not that regrets ever recoup losses, and of course we’d all be a lot better off, wouldn’t we, with hindsight?

Many investors follow a strategy that relies on their own (or someone else’s) assessment of the present, alongside forecasts for the future. However, in doing this, they’re taking a completely blank drawing sheet onto which they’re creating and building, from scratch, a portfolio of assets they believe, or have been told, will do better than the alternatives. Sometimes this goes well, sometimes it doesn’t.

We work from a different starting point. Our investment philosophy is based on what we know rather than what we don’t. For example, we know financial markets do a good job of setting prices so we see no mileage in trying to second-guess them. We believe investors will, on average and over time, receive a fair return, given access to broadly diversified, low-cost portfolios of assets that aim to beat the market average. The portfolios achieve this by utilising past facts to provide information about a security’s characteristics and its expected future returns.

Decisions we make about which assets to hold are based on decades of academic research rather than on short-term hunches. This means we comfortably focus on meeting long-term goals rather than becoming absorbed or distracted by short-term market movements. As a rule, investment decisions are not easy to make, but if, like us, you build on solid current information, securely backed by decades of evidence, we believe you can improve your chances of successful investment.

Nothing demonstrates this quite as clearly or simply as Carl Richard’s diagram:

 

Is property really a ‘guaranteed’ investment?

Isn’t it an annoying fact, that nothing in life is ever completely straightforward? There are always two sides to every coin. And it’s so important, when setting up your financial planning, that you take a good hard look at both sides of the coin, so you can make the best decisions on what’s going to work for you, and what isn’t.

Property ownership is a prime example of what I mean. Many of us have the largest part of our net worth in property – our own home. And how many of us are tempted by the idea of having an additional rental property, or have already acquired one? Certainly, many of us have grown up within a culture that has always smiled on property and ownership, how many times have we been assured of the security of bricks and mortar?

Property can be a great investment and certainly prices, in and around Ascot, have continued to steadily rise – and rise. They didn’t get knocked for too long in the credit crisis, did they? But we shouldn’t forget the pain, strain and uncertainty while that was going on, when we didn’t have a crystal ball and couldn’t be sure if things would hold or fall. We also only have to look across the Atlantic to see the mess in the US, that’s still reverberating today, caused by blissfully and blindly lending money for mortgages that didn’t have a hope of ever being paid off or even kept up.

Here are a couple of my thoughts – casting light on both sides of the coin:

WHY PROPERTY IS A BRILLIANT INVESTMENT (EXCLUDING YOUR HOME):

  • Increasing property prices: According to the Nationwide House Price Index – which has been data collecting and recording since 1952 – for the 30 years since 1985, house prices have increased on average by 6.6% per year.
  • Rental income: This could cover any mortgage you may have on your rental property, or if you don’t have a mortgage, the rental will provide an income.
  • A home for your children: You may, like me, wonder whether your children will ever be able to afford to buy a house (unless they’re prepared to completely relocate, taking them away from friends and family). If this is something you’ve mulled over, then maybe buying a rental property could be a solution. The property could be given to the children at a later date or could be sold, providing a lump sum for a deposit. This would give you the comfort of knowing, when the time is right, you’d be able to set your children on the first few steps of the property ladder. 

WHY PROPERTY SUCKS AS AN INVESTMENT

  • Dealing with tenants and or managing agents: Renting out a property, isn’t always a smooth or untroubled run.
  • Property maintenance: Keeping a property in a consistently good state of repair, can be costly.
  • When you sell: You will pay CGT (Capital Gains Tax) on any growth. For example, if you bought a property for £200K and sold it for £300K, you would have £100K of growth that would be liable for CGT. Final tax liability is dependent on your status as a basic or higher rate taxpayer and on whether you bought the property as a couple what the CGT allowance at the time of selling is etc but could be somewhere from £14,000 – £22,000. That obviously cuts into your profit.
  • If you’d opted for other investments: You could have structured it so that potentially no CGT was payable, thus putting more money in your pocket.

So you’ll see, there’s no hard and fast rule, no absolute right or wrong, It’s all about making sure you consider all options open to you and being confident, when you make your decisions, that they are right for you and your family.

POLITICIANS: PULL YOURSELVES TOGETHER!

This month I’ve got several things to say (shout!) to the Government and indeed to everyone and anyone at Westminster, who has a finger in the increasingly complicated Pensions Pie. So, here are my thoughts for politicians of whichever party, because whilst governments can come and go, common sense should always apply!  

  1. Stop messing with pensions. Whilst it’s sweet of you to continue making things more and more complicated, so more and more people are getting information-overload headaches and needing to consult financial advisers like me; the fact is, you’re not just messing with people’s minds but with their lives. So, stop it!
  1. For goodness sake, why not get better advice before putting things in place. You’re all very busy making everyone else get advice, before even thinking of utilising the new pension freedoms. Why not take a leaf out of your own book?

The way things stand now, if someone wants to access their pension, whether taking it all out in one go as cash or in stages, they need the advice of a good financial adviser. This is so all of the implications can be considered, not least of which, is what will the withdrawal mean tax-wise. Laying hands on all your money in one go sounds attractive for many reasons but it’s not always as sunny as it sounds. It could mean losing a fair bit in tax payments that may not apply if the withdrawal was staged. Obviously, it makes sense for most people that tax liabilities should be minimised as much as possible.

So, my point to Government is why don’t you also get some sound advice on board before implementing changes and why not take this advice from people who understand the full implications of what you‘re thinking of doing? Once you’ve got that very expert advice and input – Listen to it!

  1. Stop moving money from one place to another. The Government have made the decision to increase the inheritance tax allowance for houses, so it’s now going to be up to £1 million for a couple. Naturally, this increase is costing the Government money that needs to then be recovered from somewhere else.

Well, pensions hadn’t had any changes for a whole few weeks, so it was decided to decrease the lifetime allowance (how much you’re allowed in total in all of your pensions) to £1 million. That’s a sum that may sound substantial, but by the time you reach retirement and want to buy yourself a decent income, it isn’t necessarily quite as substantial as it sounds. A lot more people now need to think about whether they should stop saving into pensions, before being hit over the head with a lifetime allowance charge. Isn’t there a saying, ‘You shouldn’t borrow from Peter to pay Paul’?  

4. Once you have made a policy decision, get everything in place well before it becomes law. In that way, everyone can get everything in order too in good time and with no panic. I mean, that’s just plain, simple common sense, isn’t it?

Healthier Wealthier and Wiser!

It’s not often I begin my blog by telling you what I’m wearing, but today I’m going to make an exception, because I’m currently rather delighted to be sporting my new purple Fitbit. This is in a tasteful shade of purple and I’m only a little hurt that, although it perfectly matches my bridesmaid dress, my sister has put her foot down firmly and says I’m not allowed to wear it to her wedding.

My trusty new gadget is all about putting a foot down firmly, at the same time as making me far fitter by measuring and telling me how many steps I’ve taken in a day. I’m confident it’s going to give me the motivation to hugely improve my health and well-being, and the additional upside to all of that is it will substantially decrease my private medical insurance (PMI).

Contemplating the potential long-term financial effects in relation to my PMI, made me stop and think about how so many of the people I talk to, think PMI is synonymous with BUPA. It does seem to be the name that springs to mind first, whenever the subject comes up for discussion. This is most probably because they did seem have the market pretty tied up for a good number of years. But it’s always worth looking farther afield, particularly when it comes to an important and on-going expense, which is going to continue through the years. It’s always worth seeing if you can get the same or improved benefits at the same time as a better deal. The big benefit, naturally, is that the healthier you are, the lower your monthly premiums, so it’s an indisputable win, win situation as you move forward!

An example of a PMI provider, perhaps not quite so high profile as Bupa, is Vitality Health, which used to be Pru Health. They know, the better your health, the less likely you are to make claims on your policy, so their policy is to offer you every opportunity for health improvement. It makes both practical and commercial sense that the less money paid out, the more there is available for them to offer further options, discounts and benefits.

I happen to know about Vitality Health because, after shopping around, I found they provided the best insurance for my personal needs. With Vitality Health, you start off on Bronze Status, with no points and then gain them as you complete their online health questionnaire. You gain additional points when you go for a health screening to check on things such as, blood pressure, height, weight, glucose levels etc. You also gain when you prove you’re a non-smoker and can add to your total by achieving a certain number of steps per day or if you spend time in the gym. The more points you build up, the more your premiums go down and you find there are more benefits available to you.

Just to give you an idea of how it works for me, by doing just a little bit of exercise, I can not only get a free weekly drink from Starbucks, but a complimentary weekly cinema ticket and some monthly iTunes vouchers. I also get half price gym membership at Virgin Active, which for me is worth over £70 per month! But in case you’re thinking that this is all me, me, me – I’d like to mention that my husband’s pretty happy too. He purchased the bike he wanted from Evans Cycles and received £250 cashback from Vitality. The list goes on, with holiday deals, half price trainers and discounts on Champneys Spa Breaks. Obviously, this is just one of the policies that are out there, but I’m always more than delighted to look at your personal PMI requirements and preferences, so we can isolate the best possible one for you.

My new Fitbit has certainly changed the way I look at a lot of things and I like the feeling of achievement at the end of a busy day, when you can look back and see, not only have you done all your allotted tasks but you’ve totted up a nice number of steps at the same time.

However, I should say that at this precise moment of writing, I’m only on 7,208 steps and I need 12,500 for my maximum daily point allowance, so I know you’ll excuse me if I dash . . .

Lazy Hazy Days of Summer

Wasn’t there a song about the Lazy, Hazy Days of Summer? Mind you, I sometimes think of it as the Lazy, Hazy, Daze of Summer because by the time it gets to August, that’s often how I feel. Certainly the first part of this year has been an even busier time than usual for me and now, with the natural break August provides and the kids on holiday, there’s a chance to take things at a slightly slower pace, review what’s been achieved over the last few months and put plans in place for the next few.

It’s a good idea to use this natural break to focus, not so much on the material aspects of things but on the things money can’t buy – quality time with each other, with family and friends as well as time spent at the numerous free attractions we can all take advantage of in our local areas.  This is important to all of us. It is especially important to those who are at a certain stage in their working lives, because it’s a great opportunity to cast your mind forward to exactly what shape you might like your retirement to take.

My thought is, why not use August as a ‘practise run’? See what you enjoy, what you don’t and explore different avenues, ideas and plans you might like to put into action. Everyone has a different idea of what makes life fun, rewarding and enjoyable and of course will have different thoughts about what makes for a happy retirement. I spotted a recent survey carried out by Aegon Retirement Readiness that found, of the people questioned:

  • 62% wanted to travel
  • 59% saw themselves spending more time with family
  • 49% looked forward to taking up new hobbies
  • 25% saw themselves doing voluntary work
  • 15% planned to continue working
  • 13% wanted to live abroad
  • 12% were going to start a new business
  • 12% saw the opportunity to study

That’s a huge variation in different directions and aspirations isn’t it?. So maybe this month, whilst you’re taking some time off and hopefully relaxing, it’s worth thinking about a future when you’ll have a lot more time for doing what you want. After all, it seems to me, It’s far better to think about it now than get to retirement day and then wonder ‘What next?’

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