If retirement concerns about depleting your finances weigh heavily on your mind, rest assured, you’re not alone in grappling with this worry. It’s a prevalent issue across the UK, occupying a prominent spot among the list of financial anxieties. Taking proactive steps and collaborating with a financial advisor to craft a comprehensive retirement strategy could be the key to attaining tranquillity. Continue reading to explore the reasons behind this approach.
In an Aegon survey, 7 in 10 financial advisers said their clients’ number one concern was outliving their savings. Fortunately, there’s a silver lining: by enlisting the expertise of a financial professional, you can gain insights into what level of income is viable for your circumstances and the corresponding lifestyle it could potentially provide.
High inflation is playing a role in fears of running out of money
Upon retirement, you might find yourself in possession of a pension pot, which serves as a potential source of income. However, the responsibility of managing withdrawals may fall squarely on your shoulders, leading to concerns about withdrawing too much, or too early.
Determining a sustainable income can indeed pose a challenge. After all, predicting the precise duration for which your pension must sustain you, along with anticipating unforeseen expenses, adds layers of uncertainty to the equation.
Recent economic events have underscored how external factors beyond your influence could significantly impact the income required to uphold your desired lifestyle.
The repercussions of the COVID-19 pandemic and the conflict in Ukraine have triggered a surge in prices worldwide. Numerous nations have grappled with a period of heightened inflation as a consequence. In the UK, inflation reached its zenith at 11.1% in October 2022, marking the highest rate observed in four decades.
Inflation has indeed tapered off since its peak but remains elevated, surpassing the Bank of England’s target of 2%. According to the Office for National Statistics, in the 12 months to February 2024, inflation was 3.4%.
As expenses rose, retirees may have withdrawn more from their pensions, accelerating asset depletion and heightening concerns about financial sustainability.
Given the circumstances, it’s unsurprising that the Aegon survey revealed 64% of financial advisers identifying inflation as a significant concern for their clients.
With numerous factors at play when determining how to establish a sustainable pension income, including retirement concerns, the process can seem daunting. Tailored financial planning could provide the reassurance necessary to feel confident about your financial situation and decision-making.
A tailored financial plan could address your fears
As you might anticipate, developing a bespoke financial plan involves assessing your assets, along with understanding your goals and concerns, to provide you with confidence about the future.
Cashflow modelling could prove to be a valuable financial planning tool if you have concerns about outliving your retirement savings.
Drawing from data such as your asset value and expenses, cash flow modelling can generate a visual depiction of your wealth’s trajectory over your lifetime. This tool incorporates assumptions regarding investment returns and inflation rates to provide insight into potential financial changes.
Upon inputting the data, considering retirement concerns, you have the flexibility to adjust information to simulate how your decisions could impact your financial stability. For instance, you could visualize the potential impact on your assets by withdrawing an annual income of £35,000 from your pension, and then explore the ramifications of increasing it to £40,000.
Cashflow modelling can also address specific concerns you may have, such as:
- Would a period of high inflation result in my running out of money during my lifetime?
- Can my pension offer a dependable income if I live to 100?
- Will I have sufficient funds to cover the expenses of potential later-life care?
- Is it feasible to incrementally increase my income each year to accommodate the rising cost of living?
Cashflow modelling isn’t just useful for understanding what level of income is sustainable either. It can factor in one-off outgoings so you can review their impact on your financial resilience.
For example, the Aegon survey indicates that travelling or living abroad is a common aspiration. Therefore, you might consider modelling the impact of withdrawing a lump sum for a bucket list trip or assessing whether you could afford to purchase a holiday home.
Similarly, many individuals aim to provide financial assistance to the next generation. Consequently, you may wish to integrate the act of gifting assets during your lifetime to aid your family in achieving milestones such as homeownership or pursuing higher education.
We could help you create a long-term retirement plan
A retirement plan could be instrumental in facilitating the enjoyment of the next stage of your life while instilling confidence in your financial security. Feel free to reach out to schedule a meeting to discuss strategies for creating a sustainable income utilizing your pension and other assets.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate cash flow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
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