Tilney

Planning for retirement

For most legal professionals, retirement is the culmination of your life’s work, but achieving the retirement you deserve requires careful planning. Many private client solicitors are often so busy that they simply do not have the time to focus on personal finances. To help, we’ve outlined some important steps when considering retirement.

Make a financial plan

A good financial plan considers the present day together with your future expectations and helps you understand whether you’re on track to reach your goals or flag any necessary changes needed. Without one, many end up living for the day, never thinking about how long-term financial security will be achieved.

Saving for retirement

Pensions and ISAs

Pensions are often seen as the cornerstone of a good retirement plan, largely due to the generous tax relief available.

  • You can personally contribute up to 100% of your relevant UK earnings each year into a pension, or the annual allowance of £40,000 – whichever is the lower figure of the two — and receive tax relief.
  • For those with an adjusted income of more than £240,000 and a threshold income of more than £200,000, their annual allowance is reduced by £1 for every £2 of adjusted income they have over £240,000. This is known as the tapered annual allowance.
  • You can hold up to £1.0731 million within all your pension schemes without paying a substantial tax charge when you come to withdraw the benefits. This is known as the pension lifetime allowance.
  • ISAs also have a great number of benefits and regularly appear in most professionals’ financial plans. You can contribute £20,000 into an ISA each tax year.

What about property investments?

Property investments can fund retirements through downsizing at retirement age to live off the equity. But our experts found there’s often a reluctance to move due to being settled and still needing room for visiting family members.

Investments in buy-to-let properties are often considered for the rental income and capital growth too. But there’s Income Tax on that income, and if the property is uninhabited, you’ll need sufficient funds to cover any outstanding mortgage, as well as other potential costs of: agency fees, maintenance costs, management charges, additional dwelling supplement, land and buildings transaction tax, Capital Gains Tax when selling, and as you’ll be well aware, substantial legal costs.

Could you use your pension to lower your tax bracket?

If you are a higher-rate (40%) taxpayer, making pension contributions can have substantial benefits. If you contribute enough, you could pay less tax. This involves using your annual allowance and pension carry forward (where available). The calculations surrounding this are complex and seeking professional guidance is advisable.

The importance of investments

The quality of your pension investments can significantly impact the amount of money you have when you retire. Knowing where your money is invested and how these investment funds are performing will help you to achieve your goals and objectives.

Many people’s pensions are often left invested in the default fund that was applied when they were first created, irrespective of your attitude towards investment risks and unlikely to provide you with the income you desire. Take note of any charges applied to your investments too, a lower-cost option doesn’t necessarily mean it’s right; just as a higher-cost option doesn’t guarantee a well-performing fund.

If you’re several years from retiring, you may want to take higher-risk options than if you’re closer to retirement age. A financial planner will discuss your attitude towards risk and help you to select the most appropriate fund.

Cashflow modelling

Cashflow modelling can help towards planning your retirement by showing you how much money you could have in the future and if you’re on track to achieve your financial objectives. Various situations are considered so you’re able to see the possible impacts on your finances. This could include a fall in the market, ill health or changing your retirement date.

It’s never too early or too late to plan

When you’re younger, it’s unlikely you’ll know exactly what you need from your retirement, but you may have a rough idea that can go into a plan (many wish it to be enjoyable and comfortable). If you’re just starting to plan only ten years away from your selected retirement age, the steps are likely to be drastic, but not impossible. Scenarios could include making substantial increases to your pension contributions or working a bit longer than previously envisaged. Whatever stage you’re at, a financial planner can help you establish the actions you need to take to achieve the retirement you want.

Talk to Tilney

You can request an initial, free of charge consultation at tilney.co.uk/contact-us/request-an-appointment or call them on 020 7189 2400.

Important information

The value of an investment may go down as well as up, and you may get back less than you originally invested.

Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change.

This article does not constitute personal advice. If you are unsure as to any course of action, please talk to an adviser.

Issued by Tilney Financial Planning Limited. Authorised and regulated by the Financial Conduct Authority.

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