WITHDRAWING MONEY FROM YOUR PENSION

TODAY’S BLOG

WITHDRAWING MONEY FROM YOUR PENSION

I was recently asked to contribute to a piece that appeared in The Telegraph on 15/02/2019. The journalist, Jonathan Jones had heard of me and asked if I would offer some insight into the maths that he was posed with.

The short version is that a 69-year old reader had a pension pot of about £500,000 and wanted £35,000 a year as income, which is about 7% of the fund. The crunch question is was this sustainable?

Sustainable Withdrawal Rate

The short answer is no it isn’t likely to be. However, it is all about context, for starters, the investors other assets, state of health, lifestyle, marital and family circumstances. However, I was asked to ignore this. In the real world of financial planning, no good adviser would ignore these important elements, but certainly for the sake of maths, I was and remain happy to provide the basic outline.

It is historically “good advice” to assume a 4% income as sustainable. This can increase with inflation each year and ensure that the original fund remains alive. All of this is subject to the real world of investment returns, charges and taxes and to put it bluntly, investor behaviour.

Ringmaster

REVIEWS ARE VITAL

I don’t know any adviser that would set up an investment and a withdrawal of 4% a year and never review this. I imagine there are a few out there, just not those that I meet or have any sort of professional relationship with. All financial planning is based on the premise that life changes and plans need reviewing. Whilst I advocate cash flow modelling, which is a brilliant tool, it is a very good aid to understanding the future, but not predicting it. Life and investment returns are not linear. Stuff happens, things change.

I stand by everything in the article, but would caveat it with some real world experience and impress the need to review. The certainty of outcomes is myth. There is no way that someone can say with certainty, that taking £20,000 a year from a £500,000 will last for another 50 years. Its ought to, based upon historic data, it would have done, but that’s why we review.

High Equity Content

Certainly, more exposure to the real engine of a portfolio (equities / stocks) is vital and the more you have the more likely you are to have a rising income for life, but a far more volatile experience. In the real-world investors behave badly, anxiety turns to fear which turns to panic, which turns into a request to “sell, sell, sell” yet this is almost certainly, always the wrong thing to do in a portfolio of globally diverse holdings. I demonstrated this using our software, showing the historic sustainable withdrawal rates for different portfolios and the chance of future success. We also revealed the impact of life expectancy. Of course Jonathan didn’t have the page space to go into depth on the fullness of our conversation and he may also have been heavily edited. That is the difficult life of any journalist, who must create something to catch attention and fill space. The job of a financial planner is explanation, understanding and constructing a robust, reviewed ongoing service.

The art of self-delusion

This is something that many investors, particularly DIY investors believe that they are immune to (lack of fear). Most end up chasing returns, usually buying the current hot tips or best performers. However, this is not the Premier League, it is the real world of investing, past performance guarantees nothing and is certainly no indicator of the future when it comes to stock selection “success”. See Dalbar.com for information about how badly investors underperform.

I think the article is a good overview, but please do not infer advice from it. Context is everything. For all I know, the investor concerned was born in 1950 with a life expectancy of a few months and may have a much younger spouse with three or four children. The advice should always be suitable to the circumstances of the investor.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

WITHDRAWING MONEY FROM YOUR PENSION2023-12-01T12:17:34+00:00

Does your financial plan make your heart sing?

Does your financial plan make your heart sing?

If you grew up in the 70’s or 80’s there’s a new film that might stir a few memories. Sing Street is set in Dublin in the mid-80’s a secondary schoolboy finds his muse and musical inspiration from an imploding family life.

It’s the sort of movie that touches the familiar and a rite of passage that most of us traverse at some point in adolescence. However it is also a reminder to seize the day and not be swayed by the bullies or those that would otherwise wish to determine your course rather than address their inability to see one for themselves.

As an adult, I increasingly find myself staring at someone I barely recognise in the bathroom mirror, yet generally don’t find myself “thinking old”. Indeed almost everyone I meet at some point tells me that they do not think their age. Our own internal projections of self are often a contrast to the external. Of course with age sometimes comes wisdom, but certainly experience – which invariably alters our behaviour and attitudes, we are not who we once were. We have become responsible, whether through choice or necessity.

Sensible and Sensibility?

We know that we need to budget, save and build a pension, all laudable but fairly dull right? Sometimes being an adult isn’t all it’s cracked up to be, to be care-free certainly has its appeal, yet we know that our conformity is inevitably necessary. Financial products smack of everything that is “sensible” (at least the good ones) but they really are very dull and few would really wish to spend long discussing them.

However a good financial planner brings attention to your purpose – beyond simply repaying the mortgage and bills, confronting the question – what is your purpose? And what makes you come alive? For me this is a little reminiscent of adolescence, feeling on the cusp of huge potential. There are plenty willing to tell us what is and what is not possible, but a dream with a plan of action is invariably the difference between indifference and achievement. Sing Street is a triumph. Your financial planning can be too.

Here is the official trailer, you may have to hunt the film out as it isn’t showing in many cinemas (its blockbuster season) but its worth the effort.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Does your financial plan make your heart sing?2023-12-01T12:19:13+00:00

70 is the new 60…. well for the State Pension

70 is the new 60….for the State Pension

One wonders what we are doing to future generations. Today I read an article suggesting that the State pension age will inevitably become 70, all due to the fact that more people are living longer. The State pension age used to be 60 for women and 65 for men, this has undergone a period of “equalisation” and will be 65 for both men and women from 2018. As this ideological “hurdle” was achieved some time ago, successive Governments have simply made plans to extend the age at which a State pension is provided. The State pension age will be 66 by 2020 and 67 from 2028.

The reason is really two-fold, cost and longevity. The State pays pensions in various forms, the most obvious being the State pension, which now costs about £110bn a year. Disability pensions costs around £42.2bn and survivors pensions about £1.1bn, amounting to roughly £153.3bn which is about 20% of all Government spending and by far the largest component of Government spending. Details here (click).

Looking ahead

In essence anyone born since 1960 can expect to have to work longer. Given the increasing life expectancy and inherent problems with ageing, care costs are expected to soar, resulting in further dilemmas for Government about how to meet costs…. from a population that is having fewer children.

Episode IV – A New Hope

Consider those that graduated this summer and are just starting out on their careers, born in the early 1990’s they were only just teenagers when the credit crunch occurred the property boom had happened. If you understand my heading (refering to the very first Star Wars movie in 1977) this generation can be forgiven for thinking that the Star Wars films were made sequentially when episode I was actually released in 1999 – they were 7). Student loans are now part of their deductions each month, along with compulsory pensions. I don’t like to be a pessimist, but the generation just starting out have inherited the debts of previous Governments (currently interest payments are around £40bn a year), have little prospect of “getting on the property ladder” and an ageing population that received their State pension many years younger than they will. Any academic results they achieve are met with accusations of “easy exams” and employers seem almost eager to say “we cannot find good enough people”. Not even to mention the problems with the environment. I appreciate that you already know this.

The Breakfast Club

I am reminded of the 1985 film, “The Breakfast Club” written and directed by John Hughes, which recently celebrated its 30th anniversary. This was a group of teenagers held back in detention one Saturday morning and who eventually reveal the stories that brought them there. Vernon, the supervising teacher, representative of a now uncaring, disillusioned, bored older generation loathes the fact that he is also forced to spend his Saturday supervising misfits. He is caught by Carl, the caretaker, fishing through the personnel files hoping to find scandal that he can use against his peers. This results in a conversation between the two, in which he complains about the youth of today and ends with this dialogue.

VERNON: You think about this…when you get old, these kids; when I get old, they’re gonna be runnin’ the country.

CARL: Yeah?

VERNON: Now this is the thought that wakes me up in the middle of the night…That when I get older, these kids are gonna take care of me…

CARL: I wouldn’t count on it!

No… neither would I…. perhaps we all need to think rather more carefully about how we are planing not just our own future, but that of future generations… as Simple Minds remind in the closing title music – Don’t You Forget About Me. Perhaps there could be some redemption… even Darth Vader managed to salvage something with his own offspring.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

70 is the new 60…. well for the State Pension2023-12-01T12:19:59+00:00

A Matter of Life and Death

A matter of life and death

It is one of the strangest aspects of conversations that I have with clients. It gets stranger and perhaps more difficult the older they become. We have to talk about a matter of life and death.

In essence, when all is said and done, financial planning is about trying to ensure that your money does not run out before you die. So we need to have a conversation about when that might be. We don’t know the answer. Death is a daily part of life, yet something that most of us manage to avoid talking about.

The motivation behind the question is obviously to attempt to make money last long enough, however it is also designed to prompt thoughts about what is life about, what do you want from it during this brief sojourn on this wonderful planet?

Thoughts may turn too quickly to estate planning and reducing inheritance tax, rather than considering the true inheritance that is being left…. the memory and impact of .. well…you!

I might (will) point to the financial impact of your loss to those dependant upon you, be they family or your business, but we all know that its much bigger and deeper than that don’t we. So good financial planning can take care of financial loss, but great financial planning will hopefully remind and inspire you to ensure that you make the most of the life you have now.

Another way to view death – acceptance

A dear friend of mine, who has had more than her fair share of grief drew my attention to this short video about death (and life). It combines images from various films and words of Alan Watts. It is worth taking the 3 minutes to watch it.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

A Matter of Life and Death2023-12-01T12:20:07+00:00

Oldest Woman – secrets to longevity

Solomons-financial-advisor-wimbledon-blogger

Oldest Woman – secrets to longevity

Scotland’s oldest woman, Jessie Gallan recently turned 109 according to reports. She suggested that her longevity had been achieved by regular walking, eating porridge and avoiding men. Whilst I imagine this is is probably a little too reductionist, it does bring the issue of longevity back into the news again.breakfast at tiffanys

In April pension changes mean that it will be possible to encash an entire pension fund all at once. This would be very unwise for most people and there is concern that people will underestimate their longevity and thereby run out of money.

Living to a very old age is a mixed blessing and I imagine that you will have your own thoughts on this. As for anyone that is 109 now, if they began drawing a State pension at age 60, it has been in payment for 49 years… about the same as working life (16-65).

For those that wish to live a very long time, I guess its time to avoid the men and have a regular breakfast of porridge.

Dominic Thomas

Oldest Woman – secrets to longevity2023-12-01T12:39:53+00:00
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