Why did David get in touch with us?
David was 64 and had recently retired from his job in IT. Sarah, his wife, was 60 and a retired teacher.
They came to us as they wanted advice about generating an income in retirement.
- David had approximately £170,000 in a SIPP (Self-Invested Personal Pension), and around £30,000 in ISAs (Individual Savings Accounts)
- Sarah had £25,000 in a SIPP and £25,000 in ISAs
- They had a rental property; the rent covered the mortgage payments, but there was no surplus
- Neither had occupational pensions
David’s State Pension was due to start shortly. However, Sarah’s wouldn’t commence until 2021, which meant they had an income shortfall for the next five years.
How did we help?
We used careful planning and the Pension Freedom reforms to plug the gap, while taking advantage of additional tax-planning opportunities.
We prepared an initial cashflow forecast of five years to show how David and Sarah could plug the gap until 2021.
That is a typical strategy we would adopt when there is an income gap. Many long-term cashflow forecasting tools make pretty pictures but aren’t that useful because they imply a level of certainty that doesn’t exist, especially when predicting inflation. We prefer a series of regularly updated, shorter-term forecasts which allow planning in chunks and can be far more valuable and meaningful.
However, a long-term plan is still necessary to make sure David and Sarah’s capital will not run out. We therefore used a second tool, which is a self-designed ‘decumulation modeller’.
The modeller is similar to a typical cashflow forecast but looks only at capital and withdrawals rather than natural income levels. Crucially, it has additional features that demonstrate the probability of certain events.
The forecasts we produced gave David and Sarah comfort that their short-term income gap could be plugged without being detrimental to their longer-term financial security.
We also used the flexibility afforded by the new rules by taking a higher level of income from David’s SIPP for the next five years, then cutting it back when Sarah’s State Pension kicks in.
How did David and Sarah benefit from our advice?
In a word: reassurance.
When they came to us David and Sarah were concerned that they would be unable to meet their monthly expenditure over the next five years.
We used short and long-term financial forecasts, and the new Pension Freedom rules, to show them how they could plug the shortfall now, without causing long-term damage in the future.
Of course, we will keep their financial situation under regular review to ensure they stay on track. However, we are confident that David and Sarah’s financial future is secure.
More importantly, so are they.
We can help you too
If you are approaching retirement and worried about whether you will have enough money to live your preferred lifestyle, please get in touch.
Call us on 01664 77 88 99 and ask for Alasdair, Jim or Rob.