Lowes Magazine Issue 127

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PLANNING

Scenario 1 Current Position

Scenario 2 Delay retirement by two years

£60K

Average Life Expectancy

£50K

£40K

£30K

£20K

£ in today’s terms

£10K

£0

56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 Client’s Age

The diagram above forecasts how the client’s retirement could look if they were to retire at 60 in their current position. As you can see, the client receives a salary until retirement at 60, then their income comes mainly from tax free cash and withdrawals from their personal pension until they are entitled to receive payments from their final salary pension and the state pension at age 67. However, as highlighted by the blocks in red, the cashflow modelling establishes that the client is likely to have an income shortfall from aged 82, based on the various assumptions considered, and therefore retiring at 60 may not be in their best interest. However, there are always options available and a financial adviser can help you to make an informed decision on which one is the most suitable for you and your circumstances. They will also complete a pension review to ensure your pension provisions are aligned to your retirement goals. Options the client could consider from here: • Delay retirement: A couple of years can make all the difference to your retirement outcome. • Reduce retirement income: Consider whether you need that level of income every month, reducing your required income could help your money last longer. • Phase into retirement: Reducing the amount of days or hours you work could help to cover any shortfall. You will also be making contributions during this time, helping to grow your pension pot. • Increase your pension contributions: If you are able to, increasing your pension contributions will increase your pension savings, and can offer tax relief on your earnings.

No one can predict the future, and cashflow modelling is no different. Although a useful tool for painting a picture of what your retirement could look like and considering how your assets could be utilised, there are no guarantees it will play out that way. When making big financial decisions, cashflow planning is just one of the many tools an independent adviser can use, and here at Lowes we take a holistic approach to financial planning, reviewing all your assets and wealth to ensure your money is in the best place to support your long-term financial goals. If you’re looking to build a retirement fund, ready to access your pension savings or want to understand your pension options, we can build a bespoke financial plan which will help you achieve the retirement you want. Get in touch by visiting Lowes.co.uk/hello or by calling us on 0191 281 8811. For example, if the client was planning to retire, but a market crash happened, cashflow modelling could help to forecast the impact this could have on their finances long-term, enabling them put steps into place to prevent a shortfall later in life. Here are some of the options the client could consider if a market crash were to occur: • Potentially downsizing or using equity release to generate capital to be used for retirement income shortfall. • Delay retirement • Reduce retirement income • Phase into retirement • Increase pension contributions By delaying retirement until 62, the client would benefit from a further two years of salary, pension contributions and possible additional growth within their investment portfolio. As you can see, the client wouldn’t start to run out of money until the age of 90. We could also look to factor in a reduction in income as the client heads towards the later stages of retirement, as they may no longer require the desired income of £2,250. One of the key benefits of cashflow planning is its ability to stress test your finances, covering a wide range of eventualities, such as a market crash.

Key

Salary

State Pension

Pension Income Savings Spent

Pension Withdrawals

Pension Cash

Shortfall

Essential Expenditure

Total Expenditure

Events

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