Paul and Susan have now completely stopped work. Their state pensions have come into payment and they are relying upon these, their investments and other pensions, to generate their retirement income. Their mind-set is now firmly focused on their lifestyle and fully enjoying their retirement, producing their required net monthly income target of £6,000 and preserving the wealth they have accumulated during their lifetime. They take regular ongoing advice from their Crowe Financial Planning consultant.
Paul and Susan need a strategy to help preserve their wealth in real terms (taking account of inflation), achieve their retirement income goal in a tax efficient manner, and begin to consider what they will be able to pass on to the next generation.
Putting in place a retirement strategy and paying attention to the annual tax allowances and concessions provided by the government helps to maximise their income in a tax efficient and sustainable way. There are a lot of issues to be considered when structuring their assets, including the decisions relating to secured and flexible pension income options, the use of ISAs, General Investment Accounts, Onshore and Offshore Bonds. Consideration also needs to be given as to how their cash savings are held.
Ensuring their assets are structured in a way which utilises their respective tax bands is vital and will help utilise all the allowances available to them, making their net income target much easier to achieve. Tax exempt income can be provided by the tax free cash from Susan’s pension, their ISA savings and bank account deposits.
In addition the following annual allowances are available to each of them:
These legitimate planning opportunities must be considered in tandem with the sustainability of income and their other goals, such as any large capital expenditure items (e.g. big holidays, car replacement and wedding anniversaries), as well as inheritance tax planning.
Their retirement planning strategy helped them to put in place a sustainable and tax efficient income, as well as protecting the capital value of their assets against the effects of inflation. This was supported with cashflow planning which demonstrated a sustainable withdrawal rate and modelled the most tax efficient structure for their assets. Importantly, this strategy ensured that the income requirements of the survivor could still be met in the event either of them pass away.
Paul and Susan now feel comfortable that the level of income they require can be maintained for the remainder of their lifetime and their accumulated wealth has been positioned appropriately in terms of both investment approach and tax efficiency. This allows then to focus on enjoying their retirement, secure in the knowledge that they have an appropriate and sensible strategy designed to meet their objectives.
Stage 1: Setting a foundation
Stage 2: Building a career and raising a family
Stage 3: Career peak and accumulating wealth
Stage 4: Focusing on retirement
Stage 5: Enjoying retirement and passing on wealth
Stage 6: Later life and legacy
Intergenerational wealth series: Part 1
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