31 January 2012

Plan for More Income!

I am often surprised by the number of people I come across who have a good income but simply spend it all, leaving little in the way of savings or investments.

If I prepare a financial plan for a client I would generally recommend a strategy which will include easy-access savings, plus investments which can build up to provide a worthwhile and flexible nest-egg to be used later in life. This could include investing the tax-free lump sum which is generally available when you first take your pension.

Apart from spending sums on capital items (like the house or car), or holidays, etc., it gives you the option of increasing your income in retirement. Investing for income requires a different approach (although it's easy enough to make changes when required).

Various types of investment are available which pay out regularly, including unit trust or investment trust funds which focus on "fixed interest" investments like corporate bonds, or on shares which pay dividends - known as "equity income" funds. Then there are structured products which pay a regular sum (possibly subject to the stock market keeping above a certain level). Investment bonds issued by insurance companies (either onshore or offshore) have a different tax treatment and are the best approach for some people.

All in all, it's worth increasing your options for the future by having a plan to put some aside in the present!

26 January 2012

Don't Buy an Annuity Yet...

...without considering all the options. There is a very topical choice to be made as we head towards April 2012, as well as the usual choices that are available for taking an income from your pension (and we are talking "money purchase" or "defined contribution" here).
Pension plans containing "protected rights" (which relate to any time you were "contracted out" of the State Second Pension (or SERPS)) currently have some restrictions on how you take an income from that part of your pension. For instance, if you are married you must buy a 50% spouse's pension.

BUT - from April this year those restrictions are being removed. As a result, you may do better to wait and buy an annuity after April. Then you could choose a different level of income for spouse (or none at all if they have their own pension provision).

18 January 2012

Some Pension Myths

What can I do to help people get a better income in retirement? Debunk some myths, perhaps...

I don't need a pension - the Government will provide for me
Oh yes?! The Basic State Pension is now £5,312 per year. Do you think it is more likely to increase or decrease?!

My house is my pension
It's true that a pension is not the only way of generating an income in retirement. But if  you plan to use your house you would have to sell it or rent it out, and where will you live?

I'm too young to start saving for a pension
If you are going to wait until your 30's, 40's, or even 50's before starting to save for a pension there is much less time for investments to grow (yes I know that growth hasn't been on the agenda for a while but I fully expect it to return in due course). So you would have to save a very large proportion of your income. Much better to spread it over a working life.

Pensions are too risky
The best growth generally comes from investments which go up and down in value, which is often described as "risky". But over the longer term the ups and downs turn into growth. Anyway, where can you put your money that isn't "risky"?

Pensions are too expensive
It's certainly worth looking at charges in a pension plan - some older plans are definitely "unfriendly" from that point of view. But it doesn't have to be expensive.

I can't afford to save in a pension
If you don't, then you are effectively stealing from your future self! Yes, you have to live, which includes servicing any debts you have, but most people have some discretion over what they spend on.

Annuities are bad value
Annuity rates are the lowest they have ever been, it's true. It won't (hopefully) always be like that, and in any case, buying an annuity is not the only way to take a pension income.

16 January 2012

Baby boomers are retiring!

In 2012, 150,000 more people reach the age of 65 than in 2011. 

This is in addition to the long term trend towards an aging population, and is specific to the post-war generation. This ‘boom’ lasts for approximately 3 years, with around 2.25 million people hitting the 65 year milestone.

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