Historically you may have used your pension fund to buy an annuity but as we know this is no longer compulsory.
Under new rules your pension can essentially be treated like the rest of your savings and investments for planning purposes (with some tax advantages and disadvantages).
For much of our working life we focus on retirement and how to save for the longest holiday of your life. However, research shows that 60% of your investment earnings come from post retirement investment return, therefore, developing a retirement plan that ensures your portfolio keeps growing post retirement is more important than during your working life!
Accepted research shows that retirement income can follow the 10/30/60
• 10% from money saved during your working life
• 30% from the growth of your savings during working life.
• 60% from the growth that occurs during your retirement.
Putting this another way as much as 90% of your investment earnings and therefore income can come from investment growth with a larger percentage of this coming post retirement. The key to success is having the right portfolio up to retirement and beyond.
Here is an example (using historic modelling and future projections):
Paul has made total contributions at various stages throughout his working life totalling £120,800.
At 65, Paul begins to withdraw from his retirement savings – starting with £21,241 the first year and increasing each year until age 90.
Paul was able to withdraw over £1.1 million during retirement.
Paul’s case illustrates the 10/30/60 Retirement Rule in action:
• Just 12% of Paul’s investment earnings between ages 65 and 91 came from his initial contributions of £120,800.
• 31% of Paul’s investment earnings came from portfolio growth of £316,169 that occurred before he turned 65.
• £576,781 – a whopping 57% of Paul’s investment earnings came from growth that occurred between the ages of 65 and 90.
• Paul’s total distributions between 65 and 91 were £1,013,750.
This is a great illustration of why traditional views of retirement and retirement income need to be challenged and seriously examined.
Without labouring the point it also highlights the need for on-going advice, cash flow modelling and a good investment solution regularly reviewed.
As always we welcome any questions or feedback on this or any of our other communications.