Retirement Planning
Dom Beer and Chris Beer
Mark's Retirement Story
Mark, aged 60, is married and currently employed. Similar to many individuals, Mark has made modest endeavors to secure savings for his retirement. Now, he desires to tap into some of those savings to facilitate a smooth transition into this new phase of life.
Mark is happily married to Jane, who is 58 years old. As an engineer, Mark receives a salary of £65,000 per year. His intention is to gradually reduce his working hours, transitioning from a five-day workweek to four days per week.
Mark's retirement plan.
This is Mark's plan throughout five pivotal stages during the initial years of his retirement, outlining the sources of his income streams. When Mark reaches retirement, he will possess a total DC pension pot of £300,000, which he will allocate across various solutions at different phases of his retirement journey.
Income | Age 60 | Age 65 | Age 67 | Age 70 | Age 73 |
|---|---|---|---|---|---|
Cash ISA | - | - | - | £3,361 | £3,983 |
Drawdown | - | £8,500 | £13,778 | - | - |
LTA Income | - | - | - | £11,974 | £13,085 |
State Pension | - | - | £9,312 | £10,365 | £11,536 |
DB Pension | - | £11,000 | £11,814 | £13,149 | £14,634 |
FTA Income | £13,000 | £13,000 | - | - | - |
Salary | £52,000 | - | - | - | - |
At the age of 60:
Mark reduces his working hours and income by 20%, offsetting the loss by choosing a fixed term annuity. This annuity guarantees a stable income for seven years. At the end of this period, Mark receives a tax-free lump sum, which he can allocate towards his retirement plans.
Mark utilises these funds from the annuity to make headway in paying off his mortgage and credit card debt.
At the age of 65:
Mark enters retirement with the confidence that an income of £32,500, combined with Jane's savings, will enable them to lead a comfortable life.
His Defined Benefit (DB) pension commences payouts, fulfilling a portion of their income requirements. The remaining income is obtained through drawdown.
At this stage, Mark decides against purchasing an annuity, as he believes that waiting until later in life might offer the opportunity to secure a higher income through an enhanced annuity.
At the age of 67:
Mark now qualifies for his state pension, reducing his reliance on drawdown from his Defined Contribution (DC) savings.
He also utilises his Cash ISA for emergency income needs.
At the age of 70:
Mark chooses to further de-risk his portfolio and purchases a lifetime annuity, benefiting from an enhanced income due to his medical conditions. He occasionally withdraws from his ISA to maintain his desired income level during busier months.
At the age of 73:
Mark and Jane find themselves spending more time at home, resulting in a decrease in their overall expenses. Mark makes the decision to reserve his ISA savings solely for unforeseen circumstances, considering it as a "rainy day" fund.
What about inheritance?
While Mark and Jane still have funds in their ISA savings earmarked for emergencies, they make the decision to unlock some of the equity in their home.
By opting for a lifetime mortgage on their property, valued at £300,000, they leverage a loan-to-value ratio of 35%. This grants them an initial lump sum of £71,000, with an additional drawdown facility of £34,000 available should they require it.
With their newfound financial flexibility, Mark and Jane allocate £11,000 towards a family holiday and generously gift £60,000 to their children and grandchildren. This "living inheritance" allows them to witness the joy of their loved ones moving into their dream homes, providing a gratifying experience for the entire family.
Mark's retirement plan provides him with:
- Financial flexibility
- Guaranteed income through retirement
- An ISA as a safety net for emergencies
- A reduce inhiertance tax liability of £71,000
- Some peace of mind that even with a lifetime mortage, they wont be forced to repay the load or move until they both die or move into care. At which point outstanding loads and interest would be taken from the sale of the property.
What if Mark's life takes an unexpected turn?
Despite careful planning, life can take unexpected turns.
In an alternate scenario, as Mark reaches the age of 65, he and Jane go through a divorce. They come to an agreement where Mark retains the home, and Jane receives the ISA assets along with an additional payment of £90,000 as a settlement from Mark.
So how can Mark manage this and his remaining finances?
Without the ISA savings, Mark can manage with reduced savings by tightening his belt a bit. Although he isn't ready to leave his home just yet, he lacks the means to pay the settlement amount from his existing assets.
To address this, Mark decides to unlock equity from his home. He chooses a lifetime mortgage worth £100,000, which covers the settlement and leaves him with a £10,000 emergency fund. This enables Mark to continue residing in his home for the remainder of his life, knowing that the lifetime mortgage will be repaid upon his passing or if he requires residential care. This decision brings a sense of optimism for Mark's future.
In this particular scenario, Jane's pension assets eliminate the need for further division of pension assets. However, this approach could also be a potential solution to support clients who have a pension sharing order in place.
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Beerstone Financial Services was established in 1996 by Chris Beer, our Director, who still oversees the company and ensures we maintain the best service.
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Investments, Pensions, Wills, Trusts, PMI and Estate Planning will be referred to our authorised third-party providers. Beerstone Financial Services Ltd and BrokerSync Ltd are not responsible for any advice received from the third-party providers.
Investments, Pensions, Wills, Trusts, PMI and Estate Planning will be referred to our authorised third-party providers. ABC Ltd and BrokerSync Ltd are not responsible for any advice received from the third-party providers.
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