For David and Janet Evans

Transcription

1 For David and Janet Evans Presented by: Ross Mackereth ABC Financial Services Old Grammar School House, School Gardens Shrewsbury, Shropshire SY 2AJ Phone: Mobile Phone: Fax: ross@bmcprofiles.com Head Office 23 Salford Road Manchester M34 8TG

2 Table of Contents Important Notes For Retirement Peace of Mind 2 Shifting Retirement Concerns 3 How Much Will You Need? 4 The Family Tree 5 Retirement Lifestyle Phases 6 How Lifestyle Phases Affect Retirement Funding 7 You Must Consider Inflation 8 Steps for Your Retirement Journey 9 Your Retirement Destination Current Retirement Journey - Graph Current Retirement Journey - Ledger 2 Other Considerations & Recommendations Cover 3 How Should You Take Your Retirement? 4 Effects of Additional Pension Contributions 5 Effects of Delaying State Benefits 7 Effects of Recommendations 9 Ways to Provide Predictable Incomes 2 Options to Consider 2 About the Calculations 23

3 Important Information about this Report This analysis provides only broad, general guidelines, which may be helpful in shaping your thinking about your retirement needs. It can serve as a guide for discussions with your professional advisers. Each scenario shown illustrates your current situation or an alternative strategy and its possible effects on the financial situation you provided. Inclusion of one or more of these strategies does not constitute a recommendation of that strategy over any other strategy. Calculations contained in this analysis are estimates only based on the information you provided, such as the value of your assets today, and the rate at which the assets appreciate. The actual values, rates of growth, and tax rates may be significantly different from those illustrated. These assumptions are only a "best guess." Strategies may be proposed to support the purchase of various products such as insurance and annuities. When this occurs, additional information about the specific product (including a prospectus, if required, or an insurer provided policy illustration) will be provided for your review. IMPORTANT: The projections or other information generated in this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Version.2. c March, 25 of 24

4 For Retirement Peace of Mind, You Need a Retirement Road Map FROM TO YOU NEED CLEAR DIRECTIONS! WARNING! Some decisions made as you approach and begin retirement must last a lifetime! DIRECTIONS NEEDED 3 March, 25 2 of 24

5 Shifting Retirement Concerns Investing for retirement requires different strategies than investing during retirement. Investing for Retirement Investment Objectives Investing during Retirement Accumulation Preserve Principal Seek Growth Seek Income Risk Risk Based on Time Horizons Seek Lower Risk Taxes Defer Taxes Save or Reduce Taxes Appreciation and Earnings Some investment strategies that work prior to retirement do not necessarily work during retirement. Retirement brings a shift in concerns that are best considered in several phases. 3 March, 25 3 of 24

6 How Much Will You Need? If your "nest egg" grows at a rate greater than inflation, twice as many years of retirement do not cost twice as much, but costs do increase for each year of retirement. In retirement planning, how long is just as important as how much. A sufficient retirement "nest egg" is based on How long you will live Your lifestyle expenses Inflation during your retirement Earnings and growth of your "nest egg" Nest Egg Needed at Retirement For, per month (Adjusted for Inflation) YEARS OF RETIREMENT AMOUNT NEEDED AT RETIREMENT 5 55,7 4,97 5 5, , , ,32 Assumes inflation at 3% annually. Nest Egg is assumed to grow at 5% annually. The longer you live, the more you will need. 3 March, 25 4 of 24

7 The Family Tree How long will your retirement last? Everyone wants a long, worry-free retirement! One of the greatest fears of retirement is running out of money! Living longer than anticipated could result in outliving your assets! A common mistake in preparing for retirement is not considering enough years. Family Tree Relatives Life Span Your family tree is often a good indication of how long you will live. Do many of your relatives live to an old age? How likely are you to live even longer? Life Spans of Retirees 55 6 MALES AGE 55 6 FEMALES AGE LIFE EXPECTANCY: 8.2 YEARS 7 8 LIFE EXPECTANCY: 2.7 YEARS Source: Office for National Statistics 24 Will you run out of money? Projections based on males in the United Kingdom ages to 69 in 24 being alive 2 years or later. Projections based on females in the United Kingdom ages to 69 in 24 being alive 2 years later. Source: Interim Life Tables, The Government Actuary's Department, March, 25 5 of 24

8 Retirement Lifestyle Phases Trying to plan for all of your retirement years at one time is very difficult. Looking at retirement in phases, based on the common activities of that phase, makes it much easier to plan. The level of activities is one way to classify retirement into different phases. These are the typical lifestyle phases of retirement: PRE-RETIREMENT The amount of retirement income required for each phase, before adjustments for inflation, usually averages 7% of pre-retirement income for basic needs. The needs vary with the level of activities. The greater your activities, the more income you need. PERCENT OF INCOME NEEDED (Now) Decisions being made -- State Benefits, Pension Plan Options. INITIAL RETIREMENT PERCENT OF INCOME NEEDED Activity level is almost the same as before retirement: work is replaced with more travel, hobbies, activities, etc. Assume 7% for basic needs and 2% for extra activities. SEASONED RETIREMENT PERCENT OF INCOME NEEDED Activities decrease: less travel, hobbies and other activities. Assume 7% for your basic needs, and % for extra activities MATURED RETIREMENT PERCENT OF INCOME NEEDED Activities decrease further, often due to health and other physical limitations. Assume 7% for your basic needs, and no extra activities. SURVIVORSHIP YEARS PERCENT OF INCOME NEEDED The lifestyle costs after losing your spouse are usually at least 6% of pre-retirement income. These percentages of income are for total living expenses. Of course, they vary by individuals as well as from one year to another. 3 March, 25 6 of 24

9 How Lifestyle Phases Affect Retirement Funding You want predictable income, but you also want to increase the potential for returns on assets intended for a later phase. You want a retirement funding strategy that matches your retirement lifestyle phases. Pre-Retirement the "Decision Phase" You make decisions about your pension and retirement plans that can affect your income for the rest of your life. Do you take your State Benefits immediately when eligible, or get a little more by waiting a few years? Will you just stop working, or just slow down for a few years? How will you take the benefits from your pension plans? These decisions determine your retirement lifestyle changes, and what changes should be considered. Initial Retirement Years When You Start Receiving Income This phase of your retirement should have predictable income income provided by very conservative assets. More risk, and the opportunity for greater returns, can be taken with assets set aside for later phases of your retirement. The longer the time horizon prior to that phase, the more aggressive you can be with those assets. Seasoned, Matured, and Survivorship Years Future Income Later, when you enter the next phases of your retirement, the assets intended for that phase should be switched to investments providing predictable income. Assets for each future phase, which now have a closer time horizon, should be invested with less risk. Funding Strategy Very conservative assets supply income Minimise fluctuation of assets for the next phase Seek high yields for future phases Re-allocate assets at the start of each phase 3 March, 25 7 of 24

10 Planning Must Consider Inflation CONSUMER PRICE INDEX: 988-TODAY 2..5 Prices have almost doubled TODAY EFFECT OF INFLATION ON, MONTHLY EXPENSE, Monthly Expense increasing at 3% Inflation MONTHLY EXPENSE 25 Inflation can continually increase the cost of your lifestyle expenses. 2 5 YRS 5 YRS YRS 5 YRS 2 YRS 25 YRS If inflation continues as it has in the past, your retirement income will need to increase during retirement for you to maintain the same spending power. If inflation averaged 3% during retirement, your To maintain your lifestyle in retirement, plan for inflation. income would need to double in 24 years to maintain the same lifestyle. 3 March, 25 8 of 24

11 Steps for Your Retirement Journey Step : Determine the likely duration of your retirement phases PRE-RETIREMENT INITIAL RETIREMENT SEASONED RETIREMENT MATURED RETIREMENT SURVIVORSHIP YEARS Step 2: Examine lifestyle requirements for each phase Basic Needs: Monthly needs that are essential to your basic standard of living Additional Wants: Additional amounts you desire you would survive without it but you would be disappointed Total Desired Income: Sum of basic needs and additional wants Step 3: Determine sources of retirement income State Benefits Pension Plans Other Investments Other income Step 4: Calculate remaining requirements Desired income requirements LESS Known sources of income EQUALS Remaining requirements Remaining requirements may be provided by your available assets for retirement. Step 5: Start your journey Plan for shortfalls Invest by phases 3 March, 25 9 of 24

12 Your Retirement Destination Monthly Needs in Today's Money INITIAL RETIREMENT More travel, hobbies, activities, etc. SEASONED RETIREMENT Less travel, fewer hobbies, and other Begins at David's Age Basic Needs Additional Wants Total Desired Income 2,6 6 3,2 2,6 3 2,9 2,6 2,6 2, 2, activities MATURED RETIREMENT Fewer activities, often due to health and other physical limitations SURVIVORSHIP YEARS David dies at age 9. Monthly needs continue until Janet's death at age 9 Known Sources of Retirement Income (In Today's Money) 45, David's approved retirement plan assets, and annual contributions of 3,6, are assumed to be drawn upon when needed via the flexible drawdown method. These assets are expected to grow at 5.% annually., Janet's approved retirement plan assets, and annual contributions of,2, are assumed to be drawn upon when needed via the flexible drawdown method. These assets are expected to grow at 5.% annually. 25, Value of other assets you intend to use for retirement. David will receive State Benefits estimated within current guidelines. Janet will receive State Benefits estimated within current guidelines. David has other retirement income, Final Salary, estimated at 35 per month starting at age and continuing until age 9. Goal: Provide total monthly income for all phases. Monthly desired income will be adjusted for inflation at 3%. 3 March, 25 of 24

13 Current Retirement Journey MONTHLY INCOME REQUIRED BY YEAR 8, State Benefits 6, Retirement Distributions 4, Available Assets Other Income Wants Remaining 2, Needs Remaining DAVID JANET Monthly income objectives are offset by your known This illustration shows your available assets for retirement income: estimated State Benefits, retirement that could be used to provide the pensions, other income, and distributions from your remaining income required. These assets should be approved retirement plans. Approved retirement plan invested based on the amount needed for each distributions are illustrated assuming the Flexible retirement phase. Your available assets for Drawdown method. Other retirement distribution retirement would be able to provide for the remaining options are available. desired income. Amounts Needed by Phase RETIREMENT PHASE YEARS UNTIL PHASE BEGINS PHASE BEGINS AMOUNT REQUIRED AT START OF PERIOD AMOUNT REQUIRED TODAY Initial Retirement David's Age 8 Seasoned Retirement David's Age 8 3,943 5,39 Matured Retirement David's Age 28 2,8 7,325 Survivorship Years Janet's Age ,26 2,44 34,76 Total amount required today to provide desired retirement income2 is 34,76. Using available assets reduces your need to,36. 86% of the desired retirement income2 is satisfied. 2 Approved retirement plan distributions use flexible drawdown approach. Desired retirement income: 7, March, 25 of 24

14 Current Retirement Journey MONTHLY INCOME OBJECTIVE Ages 2 KNOWN RETIREMENT INCOME Basic Needs Additional Wants Total Desired State Benefits Approved Plans Other Income Available Assets Remaining Income 2 Required ,294 3,392 3,494 3,599 3,77 3,88 3,933 4,5 4,72 4, ,54 4, 4,3 4,43 4,562 4,699 4, 4,9 5,35 5, ,35,39,433,476,52,566,63,66 2,8 2,,934,992 2,52 2,3 2,77 2,242 2,39 2, ,426 4,559 4,696 4,837 4,982 5,3 5,2 5,444 5,67 5, ,937 5, 5,238 5,395 5,557 5,723 5,895 6,72 6,254 6,442,7,762,85,869,925,983 2,43 2,4 2,67 2,232 2,67 2,29 2,93 2,259 2,326 2,396, ,296 2,56 2,638 2, ,949 6,27 6,3 6,5 6,695 6,896 5,949 6,27 6,3 6,5 6,695 6,896 2,299 2,368 2,439 2,52 2,588 2, ,34 2,28 2,348 2,49 2,49 2,566 3,97 N/A 9 5,464 5,464,373, 3,9 Any pension payments from approved retirement plans. Total desired income reduced by known retirement income. All income is shown monthly. 3 March, 25 2 of 24

15 These recommendations consider other applications of your available assets for retirement. 3 March, 25 3 of 24

16 How Should You Take Your Retirement? Approved retirement plans offer a number of options for receiving your retirement benefits. The method selected can have a big impact on your remaining needs. Three methods of distributions illustrated are () flexible drawdown method, (2) tax-free cash plus an annuity income method, and (3) just an annuity income method. The method selected may also provide a level benefit (your monthly income remains the same each month during your retirement), or an escalating benefit (your monthly income increases each year). The amount of the income also varies with your choice of Single Life or Joint Life annuity. Distribution Choice Effects on Monthly Income Needs FLEXIBLE DRAWDOWN 64 TAX-FREE CASH PLUS ANNUITY ANNUITY ONLY 9, 9, 9, 6, 6, 6, 3, 3, 3, DAVID JANET Total Amount Required Today,36 64 DAVID JANET Total Amount Required Today 7, DAVID JANET Total Amount Required Today 83,29 State Benefits Retirement Distributions Available Assets Other Income Wants Remaining Needs Remaining Flexible Drawdown This approach draws funds from pension plans when needed rather than converting the fund to a regular income. Provides a flexible income to meet varying needs. Tax-Free Cash plus Annuity Tax-free cash plus annuity method is a popular choice. It provides 25% of your pension as a one-off cash payment and spreads the balance as monthly payments over your life expectancy. Annuity Only The annuity only method will often provide the largest monthly annuity payments spread over your life expectancy. This analysis uses the flexible drawdown method.2 2 Total Amount Required Today is any remaining amount after considering available assets of 25,. Approved retirement plan distributions use flexible drawdown approach. 3 March, 25 4 of 24

17 Effects of Additional Pension Contributions Consider additional pension contributions for David with a one-off payment of 25, and additional annual pension contributions of 3,6. Also, consider additional pension contributions for Janet annual pension contributions of 3,6. REMAINING MONTHLY INCOME REQUIRED BY YEAR 8, State Benefits 6, Retirement Distributions 4, Additional Contributions Available Assets 2, Other Income Wants Remaining DAVID JANET Needs Remaining All available assets would be used to fund the additional pension contributions. Other assets of will be required to complete the purchase. Amounts Needed by Phase without Considering Available Assets RETIREMENT PHASE YEARS UNTIL PHASE BEGINS PHASE BEGINS AMOUNT REQUIRED AT START OF PERIOD AMOUNT REQUIRED TODAY Initial Retirement David's Age 9 Seasoned Retirement David's Age 8 Matured Retirement David's Age 28,296 58,24 Survivorship Years Janet's Age ,526,47 69,595 Additional pension contributions change the total amount required today to 69,595. After applying available assets this reduces to 62, % of desired retirement income2 is satisfied Amounts required today reflect the hypothetical rates of returns for each phase of retirement. Desired retirement income: 7,382. Other assets of 25, will be required to complete the additional pension purchase. 3 March, 25 5 of 24

18 EFFECTS OF ADDITIONAL PENSION CONTRIBUTIONS KNOWN RETIREMENT INCOME Ages 2 Total Desired Monthly Income State Benefits Approved Plans Other Income Available Additional Pension Assets Contribution Remaining Income 2 Required ,54 4, 4,3 4,43 4,562 4,699 4, 4,9 5,35 5, ,35,39,433,476,52,566,63,66 2,438,944,,7,837,92,968 2,36 2,6 2, ,937 5, 5,238 5,395 5,557 5,723 5,895 6,72 6,254 6,442,7,762,85,869,925,983 2,43 2,4 2,67 2,232,866,93,997 2, 2,36 2,28 2,282 2,358 2,437 2, ,949 6,27 6,3 6,5 6,695 6,896 2,299 2,368 2,439 2,52 2,588 2,6, ,83 2,499 2,586 2,676 2,768 3,523 N/A 9 5,464, ,4 Any pension payments from approved retirement plans. Total desired income reduced by known retirement income. All income is shown monthly. 3 March, 25 6 of 24

19 Effects of Delaying State Benefits Consider delaying the start of State Benefits for 7 years. REMAINING MONTHLY INCOME REQUIRED BY YEAR 8, State Benefits 6, Retirement Distributions 4, Additional Contributions Available Assets 2, Other Income Wants Remaining DAVID JANET Needs Remaining Amounts Needed by Phase without Considering Available Assets RETIREMENT PHASE YEARS UNTIL PHASE BEGINS PHASE BEGINS AMOUNT REQUIRED AT START OF PERIOD AMOUNT REQUIRED TODAY Initial Retirement David's Age 9 Seasoned Retirement David's Age 8 Matured Retirement David's Age 28,896 24,976 Survivorship Years Janet's Age ,29 9,3 34,277 Delaying State Benefits changes the total amount required today to 34,277. After applying available assets this reduces to 27,7. 96% of the desired retirement income2 is satisfied. 2 Amounts required today reflect the hypothetical rates of returns for each phase of retirement. Desired retirement income: 7, March, 25 7 of 24

20 EFFECTS OF DELAYING STATE BENEFITS KNOWN RETIREMENT INCOME Ages 2 Total Desired Monthly Income State Benefits Approved Plans Other Additional Pension Income Contribution Available Assets Remaining Income 2 Required ,54 4, 4,3 4,43 4,562 4,699 4, 4,9 5,35 5, ,458 2,532 2,68 2,558 2,644 2,732 2,823 2,97 3,3 2,59,36,4, ,937 5, 5,238 5,395 5,557 5,723 5,895 6,72 6,254 6,442 2,686 2,766 2,9 2,935 3,23 3,4 3,27 3,33 3,42 3,55,28,7,25,26,37,354,43,454,55, ,949 6,27 6,3 6,5 6,695 6,896 3,6 3,78 3,829 3,944 4,63 4,, ,68,23,26,887 N/A 9 5,464 2, ,45 Any pension payments from approved retirement plans. Total desired income reduced by known retirement income. All income is shown monthly. 3 March, 25 8 of 24

21 Effects of Recommendations Current Retirement Journey MONTHLY INCOME REQUIRED BY YEAR State Benefits 8, 6, Retirement Distributions Other Income Wants Remaining 4, Needs Remaining 2, DAVID JANET With Recommendations MONTHLY INCOME REQUIRED BY YEAR State Benefits 8, 6, 4, Retirement Distributions Other Income Additional Contributions Wants Remaining 2, Needs Remaining DAVID JANET Consider additional pension contributions for David with a one-off payment of 25, and additional annual pension contributions of 3,6. Also, consider additional pension contributions for Janet annual pension contributions of 3,6. Consider delaying the start of State Benefits for 7 years. 96% of the desired retirement income is satisfied. Desired retirement income: 7, March, 25 9 of 24

22 Ways to Provide Predictable Incomes Having predictable incomes can protect long-term investments from early liquidation Although long-term investments can have the potential for higher returns, they usually have more "ups" and "downs" in the short-term. One of the risks associated with long-term investments is that you may need to sell it during one of its low or down periods. By having investments that provide predictable income during each phase of retirement, long-term investments intended for future phases are less likely to be liquidated early. "Income Ladders" Purchasing a series of quality, fixed-rate investments that mature as income is needed, is called income ladders. It may be possible to select a set of investments to maintain the desired income from a combination of interest and principal. This is an effective technique but requires careful selection of very conservative investments. High Quality Bonds The value of the bond varies with other economic conditions, but the dividends can be predictable for high quality bonds. Using bonds for the retirement income usually relies more on the earnings and less on the principal. This fact makes bonds a source for predictable income, but it does not utilize the principal for a portion of the income. Annuities Annuity payments offer an effective way to use earnings and principal, as payments can be stretched over your lifetime, regardless of how long that may be. Annuities are one of the few investments for providing predictable income that uses the principal and that you cannot outlive. Annuities must be selected carefully as there is much less flexibility in making future changes. 3 March, 25 2 of 24

23 Options to Consider Purchase an additional pension. Consider additional pension contributions for David with a one-off payment of 25, and additional annual pension contributions of 3,6. Also, consider additional pension contributions for Janet annual pension contributions of 3,6. Delay your State Benefits. Consider delaying the start of State Benefits for 7 years. Review your total asset allocations. This report considers the allocation of assets for your remaining retirement needs. You should review your total asset allocations incorporating these retirement recommendations. Review your desired goals and available assets for retirement. One solution to fulfilling the additional retirement needs is to do one or more of the following: Review all goals to be sure they are realistic and necessary for you to maintain your current lifestyle. Consider other assets that could be used for retirement for example, downsizing the residence could provide additional assets. Consider delaying retirement by a year or two. Consider part-time work to supplement the early years of retirement. Put plans into action. The two major mistakes people make in preparing for retirement are procrastination and not putting their plans into effect. Before purchasing any annuity contract or insurance policy, you should examine a complete illustration and policy description provided by the issuing company. 3 March, 25 2 of 24

24 Options to Consider Review your plan annually. The one thing you can be sure of is change objectives change, investments change, and many things beyond your direct control such as State Benefits change. Consider this report like a road map. You must check often to be sure you are on course, and if not, make any necessary changes to return to the original course, or determine an alternative course to reach your retirement destination. Annual reviews of your retirement objectives are the course corrections necessary to reach your retirement destination. 3 March, of 24

25 About the Calculations David Evans Male Date of Birth: 2 December, 957 Janet Evans Female Date of Birth: 9 October, 958 Calculation Basis All calculations are based on monthly income and monthly needs. Events and phases based on ages start the year in which a birthday occurs. Each year illustrated assumes 2 full months. All basic needs, additional wants and income are assumed to increase based on an annual inflation rate of 3%. The State Benefits Cost of Living rate is assumed to be 3%. All income received during a year is assumed to be spent during that year and is not used to reduce the following year's expenses. State Benefits David will receive State Benefits estimated within current guidelines. Janet will receive State Benefits estimated within current guidelines. Approved Retirement Plan All distributions from approved retirement plans are assumed monthly. This illustration assumes funds are drawn from pension plans when needed to meet any outstanding income needs. No consideration is included in this illustration for the tax status of the withdrawals. These assumptions for the approved plans are intended to illustrate possible scenarios and are only estimates. You should always seek the advice of your legal or tax adviser before taking any action with your approved plans, as there are many rules and the possibility of severe penalties for not adhering to them. 3 March, of 24

26 About the Calculations Expenses Not Illustrated Directly Taxes are assumed part of the basic needs. You should keep in mind that distributions from approved plans, as well as other income and dividend payments, are taxable and that the amount you specify as a basic need should be sufficient to pay the taxes due. Also, the survivor needs are based on income needs only and do NOT include amounts for any death or estate taxes, probate fees, final expenses, or other transfer costs at death. Investments All amounts shown are for purposes of illustration and are NOT to be construed as a guarantee on any investment performance, as any investment may experience a gain or a loss, and past performance is no assurance of future performance. If any life insurance contracts are considered because of this illustration, please refer to a separate illustration from the provider for any such product discussed. For calculation purposes this illustration assumes a post-retirement growth rate of 4%. Miscellaneous Assets specified in this illustration are just the assets you have indicated will be available for retirement. Other assets, although not intended to be used for retirement, could be used to provide for any of the remaining income required. All assets are considered owned jointly with rights of survivorship between husband and wife or are left to the survivor in the will. IMPORTANT: The projections or other information generated by this tool (Retirement Road Map) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. 3 March, of 24