Foundations

  • Foundations

    You are your foundations!

    What this document covers:

    1. What is a successful retirement?
    2. Preparing for your retirement adventure
    3. The pitfalls you need to be aware of
    4. Spending and Inflation
    5. Your attitudes to spending
    6. Your attitudes to investments
    7. Your retirement bridge
    8. Your wealth
    9. How healthy are you?
    10. You will change – the need to continually review
    11. Death – your grand finale

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  • Your materials

  • Building a retirement income pyramid

    In the foundations chapter we looked at the different types of spending and how much you expect to spend.

    In this document we look at how to build a pyramid where at the base your essential spending is matched by guaranteed income

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  • Defined benefit pension options

    A Defined Benefit pension is provided by an employer. The amount of pension you are entitled to is determined by a formula, usually a fraction (e.g. 1/80th) times a specified amount of earnings (e.g. pensionable pay) times the years you worked for that employer. Although you may have been required to pay contributions towards your pension, these contributions would not have been towards a Money Purchase pension.

    This document describes the options that may be available to you, there may be more than you thought.

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  • Money purchase pension options

    A Money Purchase pension is one where contributions paid by you and/or your employer are invested to create a pension pot which can be used to provide you with income and lump sums when you retire. Your benefits are determined by what is in your pot, not by a formula which would make it a defined benefit pension.

    This document describes the many options that may be available to you.

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  • House options

    If you are fortunate enough to own your house then it is probably the most valuable asset you possess. If you still have a mortgage outstanding, you will also need to read the section on Borrowing in Retirement. You may also inherit a house during your retirement – that scenario, together with ownership of buy-to-let properties, is covered towards the end of this section.

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  • Investment options

    Investment markets rise, then they fall, then they rise again. We are not referring to daily movements that often are much less than 1%. We are talking about periods where markets fall or rise by 10% or more in a short period, often referred to as market corrections. The technical term for this is a Sequence of Returns. However, we will refer to this as boom and bust.

    This document looks at investment risks and your options to mitigate them. It also looks at what you need to consider when building a retirement income pyramid and whilst on the retirement bridge.

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  • Where to invest

    In the Foundations section we examined your attitudes to investing. In the chapter Investment Options we look at the investment principles and theories you need to consider to obtain the best returns within the investment risk you are willing to take.

    In this section we address three questions:

    1. Are your investments in the right place?
    2. Are your investments appropriate for you?
    3. Have you got new money to invest?

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  • Cash options

    There are three reasons for holding cash in retirement:

    1. in the lead up to a large purchase;
    2. to manage fluctuations in your retirement wealth; and
    3. to cover emergencies.

    In each situation, your personal attitudes and outlook will determine how much cash you hold at any time and where it is held.

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  • How much can I spend?

    You have an amount of wealth and you wish to make it last the rest of your life. There are 4 factors that determine how long your wealth will last:

    • How much wealth you have;
    • How much you spend;
    • The investment returns you achieve; and
    • When in the investment cycle you make withdrawals to fund your spending.

    If these factors combine to create a scenario where your wealth will outlast you, then you can safely spend that amount. But you do not know how long you are going to live. We look at ways you can manage this uncertainty.

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  • Borrowing in retirement options

    Lenders become wary of dealing with older people, and not just because of historical attitudes to age.

    Put yourself in the mind set of the lender. They want their money repaid. If someone is living off their wealth, and is asking for credit, why are they not using their wealth? Is this a sign they are about to run out of money and, if so, how will the loan be repaid? This is more risky than lending to someone who is in regular employment and has a good employment history.

    Therefore, as you age you may find the number of available borrowing facilities reduces and the cost of borrowing increases.

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  • Care funding options

    More than 25% of 65-year-olds will need a significant period of care. As you get older, that percentage will increase. This section covers whether you should be paying for your care and, if you do, the alternative ways of paying for it.

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  • Regulation impact

  • Tax on Savings and Investments

    Although there are three main taxes that you need to consider – Income Tax, Capital Gains Tax and Inheritance Tax – there are also other areas of income tax that need to be taken into account:

    • Pensions Tax;
    • Savings Tax; and
    • Dividends Tax.

    Read this chapter to find out more.

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  • Personal taxes

    This Section gives an overview of personal taxation (the taxes you pay on your income); Capital Gains; and what your estate may pay on death (Inheritance Tax).

    Tax legislation is very complicated. Therefore, before making any decisions, you should talk to an accountant or financial adviser.

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  • Cost of care provision

    We make no apologies; this section could be depressing.

    Until they experience the care system, many people believe – incorrectly – that the state will look after them if they need care. This is not the case. If you suffer from cancer you will be looked after by the National Health Service (NHS), but if you suffer from dementia you will have to pay for your care. The NHS treats the sick – if we are not sick, we are expected to look after ourselves. If you are expected to pay – what will it cost?

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  • State pension

    State Pensions are the highest item of Government spending, accounting for 20% of total expenditure. This section assumes you reach State Penson Age

    This guide is written on the basis that you reach your State Pension age on or after 6th April 2016. It will point out the main differences if you reached State Pension Age before that date, but you will need to check with the Pensions Service of the Department of Work and Pensions (DWP) to understand your true position.

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  • State benefits

    The UK benefits system is very complicated. There are a number of different state benefits available. Some of these benefits are being combined as part of the roll out of Universal Credit to those who have not yet reached State Pension Age. Pension Guarantee Credit is payable from Pension Credit Age, which is currently earlier than the State Pension Age for men.

    This section will help you understand what you are entitled to.

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  • Managing your project

  • Do it yourself

    So you have decided what it is you should be doing at this moment in time. We say ‘at this moment in time’ because you need to be able to react to all the changes that will affect today’s plans as your retirement progresses. This is the first rule for doing your retirement financial planning yourself: your plans need to be flexible.

    Whilst it is possible to organise your finances yourself, you may find there are many hurdles to cross.

    In this section we forewarn you of some of the hurdles you may face and how to overcome them.

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  • Finding the best advisor for you

    If you were building a house you may engage an architect, a construction engineer, a drainage specialist, an environmentalist and many other specialists to help you overcome problems you foresee or unexpected problems that arise.

    Retirement income planning is no different. You need to seek the advice of people who are qualified to help you. In this section we help you find the best advisor to help you with your issues.

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  • Guidance and help

    We cannot cover everything on this website. In some areas, we may not have gone into as much detail as you may have liked us to. There may be areas where you want to know a lot more.

    In this section we set out a number of free information services that may help you with your understanding.

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  • Glossary

  • Glossary of terms

    This glossary, explains a number of terms you may come across when planning and creating your retirement.

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  • Calculators and logs

  • What will your retirement spending be?

    To have a fulfilling retirement your spending needs should not be more than your income. It is almost certain that your income in retirement will be less than your income whilst working. If your income is going to be less, you may have to reduce your spending.

    This section includes an Excel Spreadsheet that you can download that should help you understand where you currently spend money and how that may change in retirement.

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  • Retirement bridge template

    This Template relates to the section – The foundations on which you will build your retirement – Your Retirement Bridge.

    This template will help you understand the changes in your income that will occur as you transition into retirement.

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  • Spending / Investment monitor

    You retire, you have an identifiable amount of wealth, how much can you spend every year, with peace of mind that you will not run out of money? If you reduce your spending or use a cash reserve during times your portfolio is underperforming you may be able to spend more in future. When do you know when you should act? This template may help you with these decisions.

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  • How much money do you have?

    This calculation sheet relates to the section – The foundations on which you will build your retirement – Your Wealth.

    This calculation sheet helps you record exactly what wealth you have and what it consists of.

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  • Personal representative checklist

    To help your personal representatives it would be helpful for them to understand who to contact regarding your finances.

    This template should help you to record the information they will need.

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  • Withdrawal tool

    From the wealth you have, how much can you spend without worrying about running out of money. This simple calculator will give you some guidance.

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  • How to compare drawdown costs template

    What you will pay will depend upon how you use the facilities the contract provides, how much you have in your drawdown account, and any income you receive. To find the cheapest may mean on the face of it you may go for a more expensive headline charge. For instance a cheaper product may charge £25 per withdrawal. Over a year that is £300 if you are intending to make monthly withdrawals. If headline charge is only £100 higher you will be better off going with the higher headline charge.

    Charges fall into 3 areas, administration costs, investment costs and rebates / income you will receive. We have therefore set out this template in that style. Please also read the notes that accompany this template.

    You will need to complete this template for each drawdown provider you are considering.

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  • Download Checklist

    We expect that you will use this website for a period of years. Your initial fee provides you with 3 years access. Because of the variety of content that is covered, we would expect to update some of it as a result of changes in Government policy, Annual budgets, and the law.

    Also we wish to listen to our users. Our website is for your benefit. If we receive feedback from you that something was difficult to understand or could be improved upon we will consider those comments.

    This means that over time, the document currently on the site may not be the one you downloaded for your personal use. So that you can quickly check whether what you have is current we have produced a checklist of what the current versions of each item are.

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