Fail to prepare, prepare to fail. Harsh words, perhaps, but how can you be sure that you’ll have a comfortable retirement (and avoid a potentially uncomfortable one) if you don’t plan ahead?
Having a good financial plan – not one set in stone but one you can fine-tune, even re-engineer, if your circumstances or goals change – is about making sure you can get to where it is you want to get to. It’s like having financial sat-nav, with all the software updates thrown in.
So, what might a personalised retirement savings plan designed by experts actually look like?
There’s no set formula. After all, it’s purposely tailored around you and your precise needs. What I can say, though, is that the plan you’ll get from my team at Vanguard Personal Financial Planning will go into some detail to give you an accurate sense of your projected future finances.
But don’t worry, as it’s nicely spaced out, with diagrams and lots of white space, and written in clear, plain English – as you’d expect from Vanguard.
Successful financial planning for your retirement requires serious thought and analysis. This is what the plan provides. But once you’ve signed up you can relax, as we do all the hard work for you, so you can get on with the more interesting things in life, knowing that your finances are in expert hands.
Our plan spells it out for you: whether you could, realistically, have the kind of money you’ll need to support the kind of lifestyle you want from the age at which you would like to retire. Based on the retirement assets you’ve built up so far and what we think you can afford to continue saving, it’ll tell you how we’ll help you get to where you want to get to by investing your money and navigating the tax landscape on your behalf to maximise your chances of eventual success.
We’ll also tell in you, in black and white, what our expert service will cost you.
And if there is something you don’t understand, don’t worry: our support team and qualified advisers are ready to take your calls or hold a video meeting with you.
Where are you headed?
To help you visualise whether you’re on course to meet your retirement goal or not, all our personalised financial plans begin with a cash flow forecast.
Below is a hypothetical example of someone who appears to be on track. It shows how a 40-year-old, basic-rate taxpayer’s pension pot might grow if they started with £50,000 in retirement savings and were able to save a further £20,000 per year (including £4,000 of tax relief) until they stopped working. The graph then shows them spending from their retirement assets. In this example, the person is left with around £200,000 at age the of 100.
Source: Vanguard. Note: illustrative only. Assumes an average annual investment return of 4% after costs in the accumulation stage. Also assumes that an annual pension of £40,000 is drawn from the age 67 and that the money remains invested, earning a net return of 2% during retirement.
Based on your current and projected retirement assets, and factoring in forecast investment returns as well as any tax factors, your own personalised cash flow forecast will help you (and our expert planners) to decide which way to pivot with your plan. And if you’re not on track, we’ll guide you on what to do about it – whether that means saving more, working longer, adjusting your spending ambitions, or any combination of these.
Our technology will crunch the numbers and run through 10,000 scenarios to give you a true sense of how attainable your retirement goal is as well as a dependable plan of action to get you there.
The tax can get complicated when it comes to retirement planning. For example, it’s technically possible to put anywhere between £3,600 and £160,000 tax-efficiently into a pension pot each tax year, given varying levels of tax relief and the fact some unused tax allowances can be carried forward.
Also, save too much in your pension and you risk going above the lifetime allowance – currently £1,073,100 and frozen at this level by the current UK government until 6 April 2026 – and you could end up with a nasty tax bill.
So which tax wrappers to use for your investments, and when to do so and to what extent, can be confusing. We will try to get the right mix of workplace pensions, and Vanguard self-invested personal pension (SIPP), individual savings accounts and general accounts. We will do this on an ongoing basis that adjusts as the tax rules do.
Your financial plan with Vanguard Personal Financial Planning provides a breakdown of how we’ll invest your money in a way that respects your investment risk preferences and considers your age and number of years left to retirement.
It’ll show you the globally diversified and balanced portfolio that we’ll build and how we’ll manage your mix of assets on an ongoing basis.
We’ll suggest an appropriate mix of shares and bonds for your investment portfolio and then reduce your holding of shares and increase the amount of bonds gradually as you get closer to your retirement. This change in asset mix will follow a ‘glidepath’ designed to preserve your capital when you most need it, without sacrificing growth altogether.
After all, you’ve worked hard to build that pension pot and you don’t want to be a victim of unlucky timing by chasing growth too aggressively with riskier shares and retiring just as there’s a stock market slump.
The chart below shows what such a glidepath might look like.
We clearly explain how much we charge, how this percentage fee breaks down, we’ll also tell you how this translates into actual pounds. This way, you’ll know exactly what you’re paying and what the impact of these costs on your projected investment returns are likely to be. The total cost is only 0.79% per year.
And don’t forget: no exit fees either, so if you change your mind at a later date, you can, at no cost to you.
Not just for Christmas
Finally, it’s worth noting that at Vanguard Personal Financial Planning we don’t see a financial plan as a set of rules to be followed forever.
People’s circumstances change, as do government policies. Investment markets can also behave differently than projected and people can change their minds.
We get all that. It’s why accepting one of our financial plans doesn’t mean forging ahead with a ‘set and forget’ investment strategy. We’ll review your plan with you each year and tweak things, if necessary.
It costs nothing to produce a financial plan with Vanguard, just some time. You don’t start paying until you accept it.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Any tax reliefs referred to in this article are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.
Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55.
If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.
Vanguard Personal Financial Planning offers restricted advice. This means we will only recommend Vanguard products and investments. We will not consider the whole of the market. Vanguard will manage your investments on your behalf. You will not be able to place trades on your own account.
This article is designed for use by, and is directed only at, persons resident in the UK.
If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described in this article, please contact your financial adviser.
The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.
The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.
Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.
© 2021 Vanguard Asset Management Limited. All rights reserved.