What is Adviser Insight at Flying Colours?
Adviser Insight is a thought leadership series showcasing the perspectives and expertise of our firm’s financial advisers. Each article offers in-depth analysis on topics shaping the financial landscape, grounded in practical experience and strategic thinking.
One of my primary areas of focus as an independent financial adviser is helping clients who are close to retirement and want to balance their need for a sufficient retirement income, with their desire to support loved ones financially and leave a legacy. This is the most satisfying conversation that I have had with clients throughout our relationship; taking them on the journey from working life, into early retirement and beyond.
I’ll often first meet with clients when they are in the stage of thinking about what retirement might look like. Once they have reached their late 50s/early 60s and retirement is in sight, they then often have children in their mid-20s. As a part of the overall planning discussion, we can look at any support a client’s children might require and provide this without compromising their own retirement plans and long-term financial security.
In the early stages of retirement, we tend to fund some big-ticket items; typically, my clients want to fulfil lifetime goals like buying a camper van and touring around Europe. Or they might be looking at once-in-a-lifetime trips, or to do work to the house or garden, or even to get that car they’ve always wanted.
No matter what the dream is, my job is to work out a way to facilitate it, and make sure my clients have enough income for day-to-day living. Initially, the conversation centres around dividing finances between what can be quite cash-intensive, short-term plans and then evaluating their longer-term requirements, to ensure that their desired lifestyle is assured.
Securing your income and facilitating your personal retirement goals
Primarily, I am trying to secure your income and facilitate your personal retirement goals, before we start looking at your goals for passing on money and inheritance. Once we have a solid foundation for your income and retirement objectives, we can explore various retirement planning strategies to consider that align with your financial situation. Evaluating these strategies will help you not only accumulate wealth but also ensure that your retirement years are comfortable and secure. From there, we can delve into more complex topics like inheritance and generational wealth transfer. As we navigate through this process, I will also provide you with some comfortable retirement planning tips that can enhance your strategy. These insights will allow you to make informed decisions that cater to your unique financial landscape. By prioritizing your immediate needs and future aspirations, we can build a comprehensive plan that promotes both your current well-being and long-term security. In addition to these strategies, it’s essential to remain adaptable to changing circumstances and explore the various flexible retirement options explained in our discussions. This approach will not only provide greater peace of mind but also enable you to pivot your plans as needed. Ultimately, the goal is to ensure that your retirement experience aligns seamlessly with your evolving needs and desires. As part of our comprehensive approach, I will incorporate critical questions to assess retirement readiness, helping us identify potential gaps in your planning. These questions will empower us to better understand your current position and readiness for the future. Together, we will ensure that every aspect of your retirement plan is meticulously crafted to reflect your goals and circumstances. In addition to these strategies, we can also explore ways to optimize your savings and investments, including insights on how to retire early in the UK. By utilizing tax-efficient accounts and leveraging compound growth, you may find opportunities to achieve your retirement goals sooner than expected. This proactive approach will enhance your overall financial trajectory and provide you with greater flexibility as you transition into retirement.
Once that has been done, then we can start factoring in how and when to help with our children or grandchildren, and whether you can afford to help them now. This help could include university fees, deposits on houses, weddings, professional qualifications etc. This is another conversation entirely and usually involves some tax planning.
As a rule, most people are already very conscious of the need to carefully plan and make the best use of their assets. Property values have risen so much, and with pensions now being included in your estate from 6th April 2027, this has thrown inheritance tax (IHT) planning into sharp focus at this moment in time.
It means that people who maybe previously wouldn’t have had to think about Inheritance Tax (IHT), may now need to do so. Combining a pension and a house could also put estates above £2 million, meaning that Residential Nil Rate Bands (RNRB) may be impacted.
For example, people who have a large amount held within personal pension arrangements will now need to think about whether it is better to draw down on their pension now and gift it. For example, a married couple could gift £3,000 each using their annual exemption. They can also go back to the previous tax year and use that allowance too, (if they haven’t already done so), giving an annual allowance of up to £12,000.
This approach works for regular annual gifting on smaller estates, but clients who have significant wealth might now need to start thinking about trust planning, chargeable lifetime transfers (CLT) or potentially exempt transfers (PET), where the amount gifted falls outside of the IHT net if the person gifting survives for seven years after the gift is made.
Working with Trusts
When it comes to trusts we need to factor in whether access to capital is required, versus a “bare” trust, which surrenders control and ownership over assets. A loan trust is often considered a “best of both worlds” option. This means you can loan the money to a trust, take an income in retirement, and any surplus growth is outside of the estate for IHT purposes.
All in all, the balance is always to be found between giving up control or giving away money whilst ensuring you have enough to live on for the whole of your life which could include care home fees. There are lots of variables which make planning even more complicated.
This is where sophisticated cash flow modelling becomes vital. We use Office of National Statistics (ONS) data to map life expectancy against client objectives. This provides a data-driven approach, combined with “stress testing” to provide a range of probable outcomes, even with many variables.
My job is to ensure I consider and factor in a range of outcomes and timelines for accuracy and client peace of mind. This is important so that the right decisions can be made today. Knowing you have enough sustainable income, then allows you the ability to use surplus capital or income to help loved ones earlier and witness the impact this will have on their lives.
As with all financial planning, the “devil lies in the detail” and the key is to be able to delve into the details as much as possible, so we can forecast what life will look like in 5, 10, 15 years and even longer. By planning as early as possible, not only do my clients know their financial position with certainty, but there also becomes a cascading effect, where future generations benefit early, rather than at the death of a parent.
Bringing all this to life helps clients to make informed decisions that suit their preferences and values.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing.
If this article has raised questions for you, feel free to get in touch!
