16/11/166 ways a financial adviser can help you close to retirement

If you are planning on retiring within the next 5 – 10 years, this article is for you.

We are concerned that thousands of people will be worse off in retirement, because they chose not to work with a financial adviser.

The figures certainly shocked us:

  • A recent survey, by the TUC, found that 300,000 people retire each year without getting financial advice
  • 85% of people who used a Drawdown plan to take an income from their pension, didn’t take financial advice.

This second fact is even more worrying, as Drawdown is generally thought to carry higher risks than other options used to turn a pension pot into an income.

We truly believe that by engaging a financial adviser these people would have had a more financially secure retirement.

Let us explain some of the reasons why:

#1: Help to maximise your pension fund

The years leading up to retirement are crucial if the size of your pension pot, and therefore your income, are to be maximised when you eventually retire.

Charges and investment returns will both affect the final value of your pension.

An adviser can help to minimise the former and maximise the latter.

#2: The final opportunity to get tax-relief

Tax-relief is effectively a bonus added by the Government to your pension and will boost its value.

The years leading up to retirement, when your earnings will probably be at their peak, give great opportunities to maximise the tax-relief you can claim.

The rules around tax-relief are incredibly complex, but by understanding them, or working with an adviser who does, you could see the value of your pension increased substantially.

#3: Protecting your fund – Part One

The value of your pension can be affected by any number of factors, many of which are completely beyond your control.

Striking the right balance between investments in stocks and shares, which have traditionally produced better returns than say deposit accounts, and less risky assets, can be tricky.

An experienced adviser will have helped many people retire. They will have the knowledge and skills to help protect their client’s assets from the effects of stock market turbulence, which could significantly reduce the value of your pension.

#4: Protecting your fund – Part Two

Many people don’t realise that if your pension becomes too large, you will end up paying tax on the excess, which can be as high as 55%.

The tax doesn’t just affect multi-millionaires or those with very high earnings. As the ceiling, known as the Lifetime Allowance, has been gradually reduced, it has hit many more people, especially those in Final Salary pensions.

Fortunately, there are steps you can take to avoid being caught by the Lifetime Allowance and therefore paying additional tax.

An experienced financial adviser will be able to explain the options available to you and make a personalised recommendation on how best to avoid paying the tax.

#5: Avoiding unexpected tax bills

The new Pension Freedoms, introduced in April 2015, allow anyone over the age of 55 to have immediate access to their pensions.

The new rules give more freedom to anyone retiring now that were available to previous generations.

But, beware, potentially costly pitfalls await too. For example, research has shown that thousands of people are being hit by unexpected tax bills, after withdrawing too much money from their pension.

An adviser will be able to help you take advantage of the new Pension Freedom rules, without falling into the traps which await; helping you avoid costly mistakes.

#6: Retiring sooner than you expected

Many people focus on a specific retirement date, usually linked to when their State Pension becomes payable.

This approach can lead you to working longer than you need.

We believe it is far better to focus on the income you need and how this can be provided.

By switching the focus from an arbitrary date to your income needs, it is possible you will be able to retire sooner than you had previously planned.

Again, an adviser will work with you to understand the income you need in retirement and then consider whether the pensions you have built up will meet this need. To put it another way, your adviser will tell you when you can afford to retire,

You may be pleasantly surprised by the results!

#7: Ensuring the money doesn’t run out

Last, but by no means least.

Hopefully you will live to enjoy a long and happy retirement; indeed, some people are retired for almost as long as they worked.

Increased life expectancy means you need to ensure the level of income you take from your pension pot, can be sustained for the rest of your life. To put it another way, and perhaps a little more bluntly, you need to make sure your pension pot doesn’t die before you do!

After considering a range of different factors, a financial adviser will work with you to recommend a level of income which will meet your needs now, whilst being sustainable in the long term.

Taking too much in the early years of retirement could leave you with financial difficulties as you get older.

Cost v Value

But what about the cost we hear you say.

Of course, there’s no getting away from the fact that financial advisers charge fees.

However, we would urge you to look past ‘cost’ and consider for a moment ‘value’. In other words, look at the benefit you could gain from working with a financial adviser:

  • You could be protected from stock market volatility, at a time when it will affect you most
  • You could see your pension pot increased through being able to take advantage of additional tax-relief
  • You could pay less tax, leaving you more money with which to retire
  • You could well take better decisions when you retire, reducing the chances of running out of money before you die

But, most importantly, you could retire sooner than you had previously thought was possible.

If you are within 10 years of your planned retirement date, come and talk to us.

We promise not to bite and we believe our advice will lead to a financially healthier retirement for you and your loved ones.

If you would like to learn more about how we work with our clients and the benefits they enjoy please call us on 0208 973 4210 or complete our contact form which you can find by clicking here.