The thought of it may be daunting; it can feel like an impossible mission. But with early planning, building up your nest egg is more discipline than difficult. The process of building a retirement fund typically involves a combination of consistent saving and long-term investments. But first, you have to figure out how much you need in order to set a goal.
Funds To Live Life To The Full In Retirement
Retirement is an exciting period in life. You might be looking forward to taking a trip to somewhere you’ve always wanted to go, dedicating more time to a favourite hobby or spending more time with family and friends. However, many people feel concerned about not having the funds to live life to the full in retirement.
Making sure you have enough money to enjoy your retirement is
a matter of sensible planning and being proactive. Ask yourself, what decisions can I make today to start preparing for retirement? Investing even small amounts of money on a regular basis in preparation for retirement could leave you with a larger nest egg.
Head Start On A Retirement Nest Egg
Investing for growth is suited to those who want to get a head start on
a retirement nest egg but won’t be retiring until further into the future. If your goal is to invest for growth, this means that you are more focused on growing your initial investment over a medium-to-long period of time (five years plus) and do not intend to use the investment to boost your current monthly income. For those investing for growth, investing as far in advance as possible from when they plan to start withdrawing the investment should give their funds the best chance of maximum growth.
Investing For Income
This investment goal is designed to generate a bit of extra money now and in the future by providing a boost to your monthly income. This goal could be suitable for those closer to retirement who are looking for their investment to help with paying regular bills and outgoings in retirement. When investing for income, selecting investment trusts focused on asset classes including equities and commercial property can provide a reliable and attractive income boost.
A Time When You Have Stopped Working
Setting up a retirement goal requires you to find out how much income you’ll need when you have stopped working. As part of the planning process, you’ll need to consider answers to questions such as: ‘At what
age do you plan to retire?’, ‘How many years should you plan to be in retirement?’ and ‘What is your desired monthly income during retirement?’
Your retirement fund needs certainty – you can’t risk losing your savings because you need it as a stable income. So how can one balance the need for growth with a certainty of returns when building a retirement fund?
The key lies in considering a number of different factors: RISK APPETITE
Are you a ‘conservative’ investor who cannot afford to lose the initial capital you put up? Can you sacrifice the certainty of having your investment protected in order to gain higher potential earnings?
If you do not already have a large sum of retirement savings, you probably shouldn’t take too much risk when you invest since you may not have the luxury of time to recoup the losses should your investment turn awry.
Generally, a bigger portion of your retirement portfolio can be apportioned to higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments that are lower risk and provide more stable returns.
You can consider allocating your investments into products suitable for different investment horizons (short, medium and longer term) depending on your risk appetite. For example, a short-term investment can include some riskier assets such as single equities or investing in a fast-growing speciality fund. You should always be reminded that with higher expected returns come higher risks.
If you choose to save your way to retirement by putting cash in a savings account, the value of your money may be eroded due to inflation. In order to ensure that the money you have now preserved its purchasing power during your retirement years, you need to choose savings or investments that give you higher returns above inflation.
The key to growing your retirement fund includes having different asset classes in your portfolio, which is otherwise known as ‘diversification’. Diversification not only helps you manage the risk of your investments, but it also involves re-balancing your portfolio to maintain the risk levels over time.
The chancellor of the exchequer, Philip Hammond, delivered his spring budget to parliament on 9 March 2017. This budget was the last one to take place in the spring, The chancellor said last year that he wanted to simplify the whole business of setting taxes and government spending, which has become too complicated.
Key points from the Budget that could impact your personal financial planning:
New National Savings And Investments Bond Launched
A new NS&I bond paying 2.2% over a term of three years on deposits of up to £3,000 is now available for 12 months from April 2017.
£5K Tax-free Dividend Allowance Cut
The £5,000 tax-free allowance which commenced in 2016 is being cut to £2,000 from 2018.
Income Tax Allowances Confirmed
The personal tax-free allowance has increased to £11,500, with the higher rate tax band rising from £42,385 to £45,000. The Chancellor said the changes ‘will make 29 million people better off’. The additional rate tax band remains at £150,000. Those in Scotland will have different Income Tax bands for earned income.
New Inheritance Tax Residence Allowance
When you pass on your main family home, you can now receive an additional £100,000 on top of the £325,000 Inheritance Tax allowance via the new main residence nil-rate band allowance.
Each individual can pass on up to £425,000 without paying Inheritance Tax as long as your family home is passed on to either children or grandchildren (and your share is worth at least £100,000 in 2017/18). The higher figure applies where more than one nil-rate band is available.
Lifetime Individual Savings Account (LISA)
This new savings product is available to adults aged 18 to 39. It’s designed to support plans to save for retirement or a first home. If you are a first-time house buyer, you can pay up to £4,000 a year into a Lifetime ISA and receive a 25% government bonus. Contributions can continue up to age 50 and can be used to purchase a first property at any time from 12 months after opening the account, or be withdrawn for retirement from age 60.
£20K ISA ALLOWANCE Individual Savings Accounts (ISAs) continue to provide a tax-efficient saving option for many. How much you can save into an ISA each year has been increased to £20,000 – an extra £4,760 of tax-efficient savings. This increase, from April 2017, complements the new dividend allowance and new tax treatment of savings interest.
Buy-To-Let Tax Changes
If you have a buy-to-let property, the amount of mortgage costs you can offset against rental income to assess your profits is being reduced.
The reductions will be phased and may impact how much tax you may need to pay.
Money Purchase Annual Allowance Cut
If you have accessed a money purchase pension flexibly, how much you can then pay into your money purchase pension under the Money Purchase Annual Allowance (MPAA) and receive tax relief is being reduced from £10,000 to £4,000. This only affects you if you have flexibly accessed your defined contribution pension. The reduction doesn’t apply if you have only taken your tax-free cash sum or are already in capped drawdown and remain within the capped drawdown rules.
It's Good To Talk
The Chancellor resisted making far-reaching tax changes in this last Spring Budget, but some of the announcements could have had an impact on your personal or business situation. If you would like to discuss your situation, or if you have any further questions, please contact us.
Levels, bases off and reliefs from taxation may be subject to change, and their value depends on the individual circumstances of the investor. Your home or mortgage. The value of your investments can go down as well as up, and you may not get back the full amount invested.