WELCOME TO THE SPRING 2024 EDITION OF 'YOUR WINDOW ON MONEY'
CRAFTING YOUR RETIREMENT STRATEGY
Have you developed a retirement strategy yet? Whether you’re nearing retirement, or you still have many years of your working life ahead, careful planning is essential to secure financial stability and peace of mind when you stop working.
ACTIVE PLANNING IS IMPORTANT
According to a recent report (Standard Life, 2024), individuals on average begin actively planning for retirement around the age of 36. At this age, 63% of respondents expressed confidence in their financial decision-making abilities, a notable increase compared to younger demographics where only 56% share the same level of confidence.
With more than a decade of work experience under their belt by age 36, the ‘age of responsibility’ arrives for many people, with increasing awareness of the importance of financial planning, including actively thinking about their retirement.
Whatever your age, a well-thought-out retirement strategy is a must!
DECADES TO GO?
Younger individuals can afford to adopt a more aggressive investment approach with their pension pot, embracing riskier assets for potentially higher returns over time, if they are comfortable doing so. Although this strategy does involve exposure to short-term market fluctuations, the longer investment horizon allows ample time for recovery from any downturns (during which monthly pension contributions may be invested at the cheaper asset prices).
IF YOU'RE CLOSER TO RETIREMENT
For those on the cusp of retirement in the next few years, a prudent approach involves creating a smooth, non-volatile investment profile which minimises risk for the first five to ten years of retirement, with the remainder invested in more volatile funds which have the potential to grow over the longer term. This approach should help to shield your pension pot from the unpredictable nature of market volatility, as witnessed during events like the pandemic or financial crashes. By maintaining a stable portfolio for the initial years of retirement, you minimise the risk, thus safeguarding your financial wellbeing.
HOW ABOUT THE 'INBETWEENERS'?
For those falling between these two extremes, a balanced and risk-managed approach is advisable. The strategy here is to aim for a balanced mix of stable and more volatile investments, aligned to your risk tolerance and personal financial goals. Diversifying your portfolio across various asset classes helps mitigate risk while providing the potential for growth.
THE IMPORTANCE OF REBALANCING
Regular portfolio rebalancing is vital for a sound retirement strategy. Market fluctuations and varying asset performances can cause your portfolio to deviate from its original allocation over time. Without intervention, this drift could lead to unintended asset concentration and increased risk exposure.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
PLANNING CHILDREN'S FINANCIAL FUTURES
We all want a good start in life for the children in our family. After providing for the immediate needs of younger children, thoughts turn towards the future and consideration of longer-term goals. You may want to consider investing for your child’s future to potentially build something significant which they can call on in later life.
It sounds simple, but such thoughts also bring with them a number of questions:
What are you saving for?
How much flexibility do you need?
Which investments are appropriate?
How much control do you want over when they can access the money?
How can any tax be minimised?
The first step is to decide the investment goal or goals and the timeframe. Do you want to help a child or grandchild onto the property ladder, support them through higher education, help with a major expense, such as a wedding, or even start a pension pot for them? Perhaps a Junior ISA (JISA) may be a suitable option.
To make plans to secure the financial security of the children in your family, please get in touch, we can explore the specific options for your circumstances.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
IN THE NEWS
FIND LOST MONEY!
Up to £800m of pension and insurance assets and an even higher amount of savings could be lying dormant, according to new data (Commission on Dormant Assets, 2024). Bank and savings accounts may be declared dormant if you don’t touch the account for several years and any letters from the bank or building society may fail to reach you if you’ve changed address.
You can check for free if you have any forgotten savings or current accounts at the government-backed website www.mylostaccount.org.uk, making sure to check that the service is suitable for you.
FUTURE GENERATIONS PRIORITISED
According to research (Scottish Friendly, 2024), parents and guardians have been prioritising their children’s savings rather than investing for themselves. Between October and December 2023, the number of JISAs opened soared by 101% compared to 2019 when data was first tracked. There was a corresponding drop in ISA investments in the same period. Mothers led the way – since the start of 2019, the number of new JISAs opened was up by 115%, compared to fathers, which was up by 87%. It’s important to find the balance between your own financial stability and that of your children.
THE COST OF DYING
Nearly half (48%) of adults aged 18 to 40 don’t have life insurance (Beagle Street, 2023). This puts many in a precarious position, as the unfortunate reality is that the cost of dying is high.
Research has found that a premature death can cost surviving family members an average of £195,475 over the course of ten years (Beagle Street, 2023). These estimates are based on the hypothetical basis that someone leaves behind a partner and two children. The figure fluctuates depending on the location – London is the most expensive area (£261,754), while North East England is the cheapest (£130,160). The average cost in Wales was calculated to be £147,858 and it was £153,631 in Scotland.
HIGHER FUNERAL COSTS
Of the adults under forty who do have life insurance, 27% said they took cover out to pay for a funeral. This is an important cost to consider as a recent report has found that the average cost of dying, which includes a funeral, professional fees and send off costs, is at a record high of £9,6586 (SunLife, 2024).
MITIGATE THE PRESSURE ON LOVED ONES
Whatever your age, it is advisable to seriously consider taking out life insurance if you have dependents. Planning ahead now could significantly alleviate the stress on your loved ones, should anything happen.
We can find the appropriate level of cover based on your specific circumstances and can advise you about writing the policy in trust so that the money will go directly to your chosen beneficiaries. This is also something that could be a useful tool for IHT planning, so get in touch.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.
AI & SCAMS -- DON'T GET CAUGHT OUT
Although there is much excitement surrounding the advent and development of artificial intelligence (AI), there are some serious risks involved - namely, the prevalence of scams that are becoming increasingly sophisticated.
TYPES OF SCAMS
There are a few main scams to be aware of:
Deepfakes are essentially fake media content that is very believable. For example, a video clip of financial expert and broadcaster Martin Lewis was recently fabricated, aiming to convince viewers to part with their money. This AI software can also clone voices and use them to make fraudulent phone calls. In a recent survey (McAfee, 2024), 77% of those respondents who had been victims said they had lost money because of this kind of scam.
Images and videos can be created of people to pass through security and verification checks, thus gaining access to bank accounts
ChatGPT enables phishing scams to seem more convincing by making the tone more human and filtering out any spelling or grammatical errors.
WHO IS AT THREAT?
Everyone risks falling victim to these scams, regardless of age. In fact, research (GFT UK) has found that 48% of adults between the ages of 25 and 34 have experienced financial fraud, while only 28% of over 55s said the same.
WHAT CAN WE DO?
Andrew Bailey, Governor of the Bank of England, commented, “The time to act to safeguard our society from AI-enabled fraud is now, and all organisations need to think carefully about how AI may create fraud risks for their business and their customers. This will require ongoing vigilance, including monitoring and the sharing of insight and best practice between firms and across sectors.”
We understand that the threat of scams can feel overwhelming, especially when the capability of AI is constantly changing and developing. That’s why it’s important to question everything, equip yourself with knowledge so you’re not vulnerable and, if in doubt, get in touch for guidance.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
RETIREMENT LIVING COSTS SURGE
According to the Pensions and Lifetime Savings Association (PLSA, 2024), a ‘moderate’ standard of living that includes £55 per week on groceries, a two-week all-inclusive holiday, £10 a week on takeaways and £100 a month to take others out for a meal, could cost a single person £31,300 a year, which is £8,000 more than last year. For couples, £43,100 a year is required to live at this standard.
MINIMUM, MODERATE, OR COMFORTABLE
The PLSA’s Retirement Living Standards report details what levels of income retirees will need to live either a ‘minimum,’ ‘moderate,’ or ‘comfortable’ life in retirement. However, the forecast does not factor in any rent or mortgage payments.
As well as the cost of a ‘moderate’ life in retirement rising, so has the cost of having a ‘minimum’ living standard, which shot up by 12% from £12,800 a year, to £14,400 for a single person and £22,400 for a couple.
A ‘comfortable’ standard of living, where there is more financial freedom and some luxuries, could now cost £43,100 per year for one person – a jump from £37,300 a year earlier. This rises to £59,000 for couples to live comfortably.
INFLATION AND MORE
The increase in inflation, particularly in energy bills and food prices, over the last few years has contributed to the rising costs of retirement lifestyles. Helping family during the cost-of-living crisis, coupled with people’s expectations of living standards, also played a part.
It’s important not only to focus on your current needs, but to provide for the future and to understand how much you need to save for the standard of living you want in retirement.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
ADOPTING AN OLYMPIC MINDSET WHEN INVESTING
The countdown is well and truly underway to this summer’s Olympic and Paralympic Games in Paris when we are all sure to be watching in awe as the world’s leading elite athletes showcase their talents. And investors could boost their chances of success by emulating an Olympian’s mindset and thereby improving their financial wellbeing.
ATTRIBUTES OF AN OLYMPIAN
Many of the attributes associated with successful Olympic or Paralympic athletes are the same as those required to be a successful investor. A growth mindset, for instance, is important, as is managing nerves, being confident and resilient, having a well-thought-out strategy, blocking out ‘noise’ or distractions, setting clear objectives and realistic attainable goals, displaying discipline, and making small alterations or rebalancing.
THE COACH'S ROLE
There are also similarities in terms of the relationship between an athlete and their coach, and a financial adviser’s role with clients. Both relationships, for example, are based on trust and honesty, and rely on a coach or adviser imparting knowledge and experience. Indeed, the provision of quality financial advice, just like a good coaching relationship, should be empowering..
TAKING ADVICE
Just like elite athletes, clients who receive professional advice are typically better prepared, more focused, more likely to maintain a positive mindset and avoid behavioural mistakes that can derail any investor’s plans. So, make Olympic year the time you fully utilise the ongoing guidance and mentoring we can provide in order to ensure your investment plans stay firmly on track and give you the best chance of attaining your life goals.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
Please get in touch if you would like advice or information on any of the areas highlighted in this blog.
It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.
The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.
The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning.
All details are correct at time of writing – March 2024.