Having followed the financial planning advice Crowe Financial Planning provided during their annual review meetings, they are now looking forward to a time where they will no longer be working and wish to evaluate how they can meet their income needs in retirement.
With less than 12 months to go until their target retirement date, they ask their Crowe Financial Planning Consultant for formal advice around a formal strategy to meet their net income target in the most tax efficient manner. This includes how they will withdraw from their various pension and investment assets in order to meet their £6,000 per month net income target. Susan is keen to ensure that she does not pay higher rates of tax in retirement. Their consultant produces a formal report and recommendations, including cashflow projections to show the impact of their withdrawals on their capital base over time and to ensure that it is achievable.
There are also a number of pre-retirement planning considerations. Paul may be able to purchase additional years under his Teacher’s Pension entitlement and/or consider personal pension contributions. They may also need to replace any benefits that drop away in retirement, such as private medical cover or life assurance.
Paul’s Teacher’s Pension will provide them with a secure and inflation-linked base retirement income. Their taxable investment portfolios and ISAs can now be drawn against for a regular income. If required, they can utilise their annual Capital Gains Tax (CGT) allowances to give them an additional tax-efficient source of money.
If they choose to downsize their home and release capital, the net proceeds can also be added to their investments, which will boost the income available. They may also be advised to consider other tax advantaged investment vehicles, such as an offshore bond, from which regular withdrawals can be taken to support their income needs in retirement.
Given the current Inheritance Tax (IHT) efficiencies of Susan’s pension, she is advised to only draw down on this fund as required, likely on a 'phased' basis using a combination of tax-free cash and income each year to meet their needs and to reduce her income tax. This requirement would be considered each year at the annual review and planning meetings.
They will also need to start thinking about their wider estate position. This would involve an assessment of the current position and discussions around how concerned they are by the potential inheritance tax liability. There will likely be a number of strategies to consider – making further capital gifts to the children, trust-based planning and inheritance tax efficient investing. However, as these discussions will evolve over the years, one immediate solution is to take out a simple life assurance policy to meet the potential IHT bill.
With sensible planning, Paul and Susan will reach retirement confident that their retirement income needs can be met in a tax efficient and sustainable manner without putting too much strain on their capital. Their hard work over the years has paid off and, by seeking regular advice over the years, their affairs are structured to provide them with financial peace of mind and a high degree of flexibility.
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
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