Blog Archives - Page 7 of 23

The potential perils of accessing your pension at 55

Reaching the minimum pension age and being able to access your retirement savings might mean new possibilities opening up. You may start thinking about giving up work, withdrawing a lump sum to pursue a goal, or using your pension to boost your regular income.

It’s an exciting time, but it’s also important to evaluate your decisions and consider how they could affect your long-term plans. Indeed, spending too much too soon could lead to a shortfall later in life.

Usually, you can access your pension from age 55 (rising to 57 in 2028). For many people, this milestone will come before their planned retirement date.

Yet, January 2025 research from Legal & General suggests 1 in 5 people access their pension at 55.

32% of those withdrawing from their pension at 55 said it was to cover essential expenses. However, 46% simply said they did so “because they could”.

Worryingly, 27% of UK adults aged over 50 make decisions about their pension without seeking any advice or guidance. It could mean a significant proportion of those accessing their pension as soon as possible don’t fully understand the long-term implications it could have.

If you’re thinking about withdrawing money from your pension, here are three potential risks to consider first.

1. It could increase your risk of running out of money later in life

Pensions are often among the largest assets people own. So, it’s not surprising that some look at the value and believe they have enough to splurge.

Yet, it’s important to consider why you’ve saved into a pension – to create financial security once you give up work.

If you start accessing your pension at 55, you could be at greater risk of facing a shortfall later in life as it’s likely to need to last several decades. Indeed, according to the Office for National Statistics, the average 55-year-old woman will live until they’re 87. For a man of the same age, life expectancy is 85.

Even if you don’t plan to take a regular income from your pension straightaway, withdrawing a lump sum can have a significant effect on the value of your retirement savings.

Your pension is normally invested with the aim of delivering long-term growth. Taking a lump sum could mean investment returns are lower than expected, which, in turn, may lead to a lower income when you retire.

That’s not to say you shouldn’t access your pension at 55, whether you want to use the money to travel or start reducing your working hours. However, understanding the potential long-term implications of doing so and how it might affect your retirement lifestyle is important.

2. You may face an unexpected tax bill

You can usually withdraw up to 25% of your pension without facing a tax bill, either as a lump sum or spread across multiple withdrawals.

However, if you exceed the 25% tax-free portion, your pension withdrawals may become liable for Income Tax. According to the Legal & General study, around a third of those accessing their pension at 55 are withdrawing more than 25%.

The withdrawal above the tax-free amount would be added to your other sources of income when calculating your Income Tax liability. So, you might want to consider whether it would push you into a higher tax bracket and increase your overall tax bill.

It’s also worth noting that if you receive means-tested benefits, taking a lump sum or income from your pension could affect your entitlement – something a quarter of people didn’t realise.

3. It could limit how much you can tax-efficiently save in your pension

Accessing your pension might reduce how much you can tax-efficiently contribute to your pension each tax year.

In 2024/25, the pension Annual Allowance is £60,000. This is the amount you can personally contribute while retaining tax relief benefits. However, you can only claim tax relief on up to 100% of your annual earnings.

You can normally withdraw your tax-free lump sum from your pension without affecting the Annual Allowance, but if you take a flexible income, you might trigger the Money Purchase Annual Allowance (MPAA).

The MPAA is just £10,000 in 2024/25. As a result, it can significantly reduce how much you’re able to tax-efficiently add to your pension and it might negatively affect your retirement income.

Financial planning could help you understand the effect of accessing your pension at 55

One of the challenges of understanding whether accessing your pension sooner is the right decision for you is that you often need to consider the long-term effects.

Financial planning could help you see how accessing your pension at 55 might affect your long-term finances and review other options as part of a wider financial plan. If you withdraw some of your pension now, it could help you feel more confident, or you might decide an alternative option makes more sense for you.

If you’d like to access your pension, we’re here to help you calculate the potential long-term consequences and more. Please get in touch to arrange a meeting.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

Why ongoing financial advice could ease your mental load

Handling finances is a part of life and something that most people do, but that doesn’t mean it isn’t stressful. Indeed, many people don’t feel confident making financial decisions, and financial advice could ease their mental load.

Even when you’re relatively comfortable, managing your finances can be a cause of concern. Indeed, you might find it even more stressful as you may be considering how to reduce tax liability or how to make use of allowances to pass on wealth to your loved ones.

Worries about the future are common too. You may feel confident in your ability to handle your finances now, but what would happen if you faced a financial shock? Or how will you manage your finances when you retire, and you may no longer receive a reliable income?

Fears about the future could harm your mental wellbeing and mean you don’t enjoy the things that are important to you.

While you might think of financial planning as a way to grow your wealth, the non-financial benefits are often just as valuable. Establishing a relationship with a financial planner could reduce your mental load. Read on to find out how.

A financial plan could give you confidence in the future

A survey published in IFA Magazine in January 2025 found more than half of over-55s – the equivalent of 10.5 million people – are worried their retirement savings won’t last their lifetime. Only 27% of those surveyed said they weren’t concerned about running out of money.

It’s not just retirement that can cause money worries either.

As a worker, you might worry about how you’d meet essential costs if you became too ill to work, or as a parent, you might want to set aside a financial safety net for your family in case the worst should happen.

As life is unpredictable, effectively managing your finances to ensure you’ll be secure in the future can be difficult. We can work with you to help you understand how the decisions you make now could affect your security in the future.

A cashflow model provides a way to visualise how your wealth will change over time.

You start by inputting the details of your assets now, and the actions you’re taking, such as how much you’re adding to your pension each month or the amount you plan to add to a Stocks and Shares ISA each year. In addition, you can estimate factors like investment returns.

With this data, a cashflow model can predict how the value of assets may change during your lifetime.

If you’re worried about your finances, a cashflow model can be particularly useful for calculating how financial shocks would affect you.

For example, you might use it to see how needing to retire five years earlier than expected due to ill health would affect your retirement income. Or, if you stopped non-essential outgoings, such as money into a savings account, because you’re unable to work, how that could affect long-term plans.

Understanding how your finances might be affected by these shocks could mean you’re able to take steps to secure your long-term finances. You might decide to take out appropriate financial protection or increase your pension contributions now to create a safety net and offer you peace of mind.

The outcomes of a cashflow model cannot be guaranteed, but it can provide a useful overview of how your finances might change and highlight potential gaps, which provides an opportunity to close them.

As a cashflow model relies on accurate information, regularly updating the data is important.

Working with a financial planner could enable you to focus on what’s important to you

According to a February 2025 survey from Moneybox, just a third of UK adults said they feel very confident in managing their personal finances. In fact, 64% believe they’ve missed out on financial opportunities in life due to a lack of financial knowledge and low confidence.

The financial world can seem like it’s filled with jargon, acronyms, and complexities to wrap your head around. So, it’s not surprising that many people don’t feel confident making decisions.

By working with a financial planner, you have someone to turn to when you don’t understand something or aren’t sure what the right choice for you is. The reassurance of knowing someone is there for you could ease financial stress.

The cognitive and emotional effort to plan, anticipate, prepare, and organise your finances may create a mental load that you struggle to manage, even when you’re confident about financial matters.

So, you might choose to work with a financial planner in a way that allows you to take a hands-off approach, with them reviewing assets like your investments or pension on your behalf, with regular reviews.

Handing over these tasks might mean you’re able to focus on what’s most important to you, whether that’s spending time with your family, working your way up the career ladder, or pursuing a passion.

Contact us to talk about your financial plan

If you’d like to learn more about the benefits of financial planning and find out how we could support you, please get in touch.

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.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

How financial planning could help you overcome decision paralysis

How long do you leave essential tasks on your to-do list? If you’ve put off tasks because they feel overwhelming, you’re not alone, but delays could be harmful. Read on to find out how financial planning may help you overcome decision paralysis.

According to a January 2025 study from the Post Office, half of adults in the UK have delayed important tasks because they feel too overwhelmed. As well as potentially affecting your plans, procrastinating can harm your wellbeing. Indeed, 63% of survey participants said they feel “weighted down” by their to-do lists.

Commonly delayed tasks include writing a will (25%) and filling in tax returns (18%). For those under 35, managing a pension was also a common sticking point, with 87% feeling overwhelmed by the task.

For some, procrastination can be due to having too many options or worrying about making the “right” decision, leading to decision paralysis – where you know you should tackle a task but don’t know where to start or what to do next.

If it’s financial tasks you’ve been putting off, working with a financial planner could help you overcome decision paralysis.

We can help you prioritise your to-do list

If you have a long to-do list, one of the first challenges might be deciding where to start. Should you write your will first, or spend some time reviewing your pension options?

As your financial planner, we could help you prioritise the tasks depending on your circumstances and needs. Having a clear order could mean your list feels more manageable and give you the confidence to focus on one thing at a time, which could be more productive than trying to multitask.

We can explain the different options to you

Modern life often means you have a lot of options. While this can be a good thing, it may also feel overwhelming as well – how do you sift through all the different options and decide what’s right for you?

This can affect many aspects of your to-do list, including financial tasks. Perhaps you want to start investing but aren’t sure where to invest or how to create a balanced portfolio that reflects your goals. Or maybe you want to set up a trust to protect assets for your child, but you aren’t sure how to compare the different types of trust.

Working with a professional means you have someone to turn to when you have questions. It might mean your options are clearer and you feel empowered to make a decision.

With 30% of people telling the Post Office survey too much information was a barrier for them completing tasks, having someone who can simplify the details and highlight which parts might be important for you could be invaluable.

We can help you understand the long-term effect of your decisions

Financial decisions may be complex and could affect your long-term financial security. So, decision paralysis might occur if you’re worried about making the “right” choice.

Let’s say you’re ready to retire and access your pension. You may be concerned about withdrawing too much and running out later in life. Or you may be unsure if purchasing an annuity or taking a flexible income is right for your lifestyle.

A financial planner could help you understand the long-term effects of your decisions, so you can feel confident about the future.

This may include using cashflow modelling to visualise how your wealth might change depending on how much income you withdraw from your pension each year. You could even use it to model financial shocks to see how you might create a safety net, which may put your mind at ease and help you move forward with a decision.

We can handle tasks on your behalf

43% of UK adults told the Post Office survey that they would hire a personal assistant to help them with life admin if they could.

If you want to take a hands-off approach to managing your finances, building a long-term relationship with a financial planner could be right for you. We’d take the time to understand your aspirations and how your assets might be used to support them to create a tailored plan.

With regular reviews, we can work with you to ensure your plan continues to reflect changes to your circumstances and wishes and make adjustments if necessary.

Contact us to create a financial plan that works for you

If you’d like to review your finances and how they might support long-term goals, please get in touch. We could work with you to create a tailored plan that suits your needs, offers a clear direction, and provide ongoing support should you have any questions or concerns.

The Financial Conduct Authority does not regulate trusts or will writing.

Is your estate worth more than £2 million? Your Inheritance Tax liability could be higher than you expect

Often dubbed the “most hated tax” in the media, Inheritance Tax (IHT) is a tax on your estate when you pass away, which could reduce how much you leave behind for family and friends. If your estate is worth more than £2 million, the potential IHT bill might be higher than you expect. Read on to find out why.

Frozen thresholds mean the number of estates liable for IHT is on the rise. Indeed, according to a November 2024 BBC report, around 4% of estates were liable for IHT in 2024 and it’s expected to rise to 7% by 2032.

HMRC statistics show £6.3 billion was collected through IHT receipts between April 2024 and December 2024 – £0.6 billion higher than the same period in 2023.

As the standard IHT rate is 40%, it could significantly reduce the value of your estate if it’s liable. So, it’s important to understand if your estate exceeds IHT thresholds.

The residence nil-rate band is reduced if your estate is worth more than £2 million

Usually, when passing on assets to loved ones, you can make use of two key thresholds.

The nil-rate band, which is £325,000 in 2024/25 and frozen until April 2030. If the entire value of your estate falls below this threshold, no IHT will be due.
The residence nil-rate band could increase how much you’re able to pass on before IHT is due if you leave your main home to your children or grandchildren. In 2024/25, the residence nil-rate band is £175,000 and is also frozen until April 2030.

You can leave assets to your spouse or civil partner without them being liable for IHT, and you may also pass on unused IHT allowances. So, if you’re planning as a couple, you could leave up to £1 million to loved ones before your estate may be liable for IHT.

However, a little-known rule could mean the amount you’re able to pass on before IHT is due is lower.

If the value of your estate is more than £2 million, a taper reduces the residence nil-rate band. For every £2 that the value of your estate exceeds this threshold, the residence nil-rate band will reduce by £1. So, if your estate is worth more than £2.35 million, it will not benefit from the residence nil-rate band.

As a result, your loved ones could face a higher bill than you expect.

5 proactive steps you could take to reduce a potential Inheritance Tax bill

The good news is there are often steps you can take to reduce a potential IHT bill if you’re proactive. So, making IHT part of your wider estate plan could mean you’re able to pass on more to loved ones.

Here are five steps you may want to take if you’re concerned about IHT.

1. Write a will

Writing a will is a way to ensure your assets are passed on in a way that aligns with your wishes. It may also be used to pass on your assets tax-efficiently.

For example, you might state that certain assets are to go to your spouse or civil partner, so they aren’t considered for IHT purposes.

While you can write your will yourself, seeking legal support may be useful. A solicitor could minimise the risk of mistakes occurring and ensure your will clearly sets out your wishes.

As your circumstances and wishes can change, it’s often a good idea to review your will following major life events or every five years.

2. Gift assets during your lifetime

One way to cut an IHT bill is to reduce the value of your estate by passing on wealth during your lifetime.

This option could have other benefits too. You’ll be able to see the effect your gifts have and you might be able to offer financial support when your loved ones would benefit from it most. For instance, a gift to your child when they’re struggling to get on the property ladder could be more useful to them than an inheritance later in life.

However, it’s important to note that not all gifts will be considered immediately outside of your estate for IHT purposes. Usually, gifts will be considered for up to seven years. These are known as “potentially exempt transfers”.

Some gifts will be immediately outside of your estate when calculating IHT, including:

Up to £3,000 each tax year known as the “annual exemption”
Small gifts of up to £250 to each individual, so long as they have not benefitted from your annual exemption
Wedding gifts of up to £1,000, rising to £5,000 for your child or £2,500 for grandchild
Regular gifts from your surplus income that are part of your normal expenditure and do not affect your usual standard of living.

It’s often a good idea to keep a record of gifts, particularly if you plan to gift from your surplus income as HMRC may check to see if the gifts are part of a pattern.

A financial plan could assess the effect of passing on assets during your lifetime and help you understand how gifting might affect your financial security later in life.

3. Place assets in a trust

You may take assets outside of your estate by placing them in a trust and potentially reduce the IHT bill your estate pays as a result.

You can specify who you’d like to benefit from the assets held in a trust, known as the “beneficiary”, and who will manage the trust on their behalf, known as the “trustee”.

Trusts can be complex and once you’ve transferred assets you may not be able to reverse the decision. As a result, taking professional advice could help you assess what’s right for you.

As a financial planner, we could help you understand the effects of placing assets in a trust and how you might do so in a way that aligns with your wishes. A solicitor could also offer support in writing a trust deed, which would establish the trust and set out any rules or conditions you may have.

4. Leave 10% of your estate to charity

If you leave at least 10% of your entire estate to charity in your will, the IHT rate your estate pays may fall from 40% to 36%.

In some cases, leaving a portion of your estate to charity could mean passing on more wealth to your loved ones while supporting a good cause.

5. Take out life insurance

Life insurance won’t reduce an IHT bill, but it could provide your loved ones with a way to pay it.

If you took out whole of life insurance, it would pay out a lump sum on your death to your beneficiary, which they may then use to pay an IHT bill. It’s an approach that could mean you’re able to pass on your estate intact and reduce stress for your loved ones.

You may need to calculate the potential IHT bill to ensure the payout would cover the entire amount. You’ll also need to pay regular premiums to maintain the cover.

It’s also important that the life insurance is placed in trust, otherwise, the payout could be included in your estate when calculating IHT and lead to a larger bill.

Get in touch to talk about your estate’s potential Inheritance Tax liability

There are often other steps you might take to reduce your estate’s IHT liability too. If you’d like to discuss your estate and how you might pass on wealth to your loved ones efficiently, please get in touch to arrange a meeting.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.

Business owners: 5 reasons you could benefit from saving into a pension

Building a business can be exciting and rewarding, and it might play a key role in ensuring you’re financially secure now and in the future. Yet, focusing all your attention on your business could mean you miss alternative ways to provide security later in life, including overlooking a pension.

Indeed, according to a January 2024 report in This Is Money, around half of business owners aren’t regularly contributing to a pension.

Many business owners may plan to use their business to create an income once they’re ready to step away from work. You may plan to sell your business to a third party and live off the proceeds, or remain a shareholder of the firm and take a dividend income.

While your business could provide for you in retirement, it isn’t always a reliable option, and it might not be the right one for you. Read on to find out why and discover how a pension could support your long-term financial security.

Your business might not deliver the retirement security you expect

Even if your business is thriving, there are some challenges you could encounter if you plan to use it to fund retirement.

The funds might not be readily accessible

While you might have enough money tied up in your business to fund retirement, it’s not always simple to access the money, especially if you plan to sell your company.

Finding the right buyer for your business can be a time-consuming and lengthy process. Delays may mean you need to push back your retirement date if you don’t have other assets you could use to create an income. This could be particularly challenging if changing circumstances, such as your health, mean you want to retire sooner than expected.

Selling your business for the “right” price isn’t guaranteed

Whether you plan to sell the business to a family member or need to find a buyer, you’ll often need to negotiate a price, and selling the firm for “enough” to support your retirement goals may not be guaranteed.

In some cases, a business owner might struggle to find a suitable buyer too. As a result, relying solely on your business could mean your retirement plans are uncertain.

So, even if you plan to use your business to support your later years, taking other steps to create a retirement income could help you feel more confident about your future.

The tax-efficient benefits of using a pension to save for your retirement

It’s important to remember that you can’t normally access the money saved in your pension until you reach retirement age, which is 55 (rising to 57 in 2028). So, if you’re saving for short-term goals, alternative options could be better suited to your needs.

However, if you’re thinking about your long-term financial security and how to create a retirement income, a pension could be an option worth considering for these five reasons.

1. Your pension contributions could benefit from tax relief

To encourage you to save for your retirement, your pension contributions will benefit from tax relief, providing a boost to your savings.

The amount of tax relief you receive usually depends on the rate of Income Tax you pay. So, if you pay Income Tax at the basic rate and want to increase your pension by £1,000, you’d only need to add £800 as your contribution would benefit from £200 of tax relief.

To boost your pension by £1,000, the amount you need to add as a higher- or additional-rate taxpayer is £600 and £550 respectively.

Your pension scheme will often claim tax relief at the basic rate on your behalf. However, you may need to complete a self-assessment tax return to claim your full entitlement if you’re a higher- or additional-rate taxpayer.

2. Your pension contributions are often invested

Normally, the money you place in a pension is invested. This provides an opportunity for the value of your pension to rise over the long term.

As your pension contributions may remain invested for decades, the compounding effect could mean your initial contribution has significantly increased by the time you retire.

Of course, investment returns cannot be guaranteed and it’s important to weigh up what level of financial risk is appropriate for you. However, historically, financial markets have delivered returns over a long-term time frame.

3. Investments held in a pension are not liable for Capital Gains Tax

Returns from investments that you don’t hold in a tax-efficient wrapper may be liable for Capital Gains Tax (CGT).

Fortunately, investing in a pension means your returns won’t be liable for CGT. So, if you’re investing for the long term, a pension could offer a way to mitigate a potential tax bill.

4. Contributing to your pension could reduce your business’s tax bill

Employer pension contributions are often an “allowable expense”. This means your business could deduct contributions to your pension for Corporation Tax purposes, which might reduce your business’s overall tax bill.

Tax treatment varies and is subject to change. If you’d like help understanding how you could balance retirement planning with your firm’s finances, please get in touch.

5. Separate your business and personal finances

For some business owners, separating your personal finances and those of your firm could be useful.

Using a pension to save for retirement might offer you some security – even if the circumstances of the business or personal goals change, you may have a safety net to fall back on should you need to. For example, if ill health means you want to retire earlier than expected, having a pension, rather than relying solely on your business, could provide you with more freedom to choose what’s right for you.

We could help you create a long-term financial plan

As financial planners, we could help you build a long-term financial plan that considers your goals and circumstances, including using your business to support your aspirations. Please get in touch to arrange a meeting with one of our team.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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.

5 ways financial planning could help you emotionally prepare for retirement

While financial challenges often come up when those nearing retirement are asked about their concerns, emotional obstacles could be just as important. A financial plan might include looking at areas like your pensions and investments, but it could help you emotionally prepare for retirement as well.

Here are five ways a financial plan could improve your wellbeing and confidence when you retire.

1. Financial confidence could ease concerns when you retire

One of the key concerns that weighs on those nearing retirement is a financial one. According to This is Money in January 2025, more than half of over-55s fear they’ll run out of money later in life. Just a quarter of people believe they have enough to see them through retirement.

Worrying about running out of money could mean you’re not able to fully relax and enjoy your retirement. A financial plan could help you understand how you might create a sustainable income that will last a lifetime.

So, taking control of your finances before you give up work could improve your overall wellbeing and mean you feel far more prepared emotionally for taking the next step.

2. It provides a chance to consider what you’re looking forward to

A financial plan doesn’t just focus on your assets, but what you want to get out of life. A retirement plan is the perfect opportunity to consider what you’re looking forward to in retirement and address any apprehensions you might have.

You might start by setting out what your ideal week in retirement would look like – are you keen to see your family and friends more now you’re not working, or would you like to join a class to develop a hobby?

While you’re doing this, you might discover concerns as well. For example, some retirees may worry about feeling lonely if they enjoy the social aspect of work. As a result, they might ensure their retirement income provides enough disposable income to regularly go out with loved ones or try an activity that allows them to meet new people.

3. Financial security could mean you’re able to enjoy big-ticket expenses

It’s not just the day-to-day retirement lifestyle you might be looking forward to, there might be one-off experiences or purchases that you’d like to spend some of your money on.

If you love to explore new places, you might dream about taking an extended holiday to exotic locations now you’re no longer tied to work. Or, if you’re a keen gardener, you might want to explore purchasing an extra plot of land to turn into an outdoor oasis.

Whatever your big-ticket plans, incorporating them into your financial plan could help you understand what’s possible and get you excited for the future.

4. A financial plan could address retirement trepidations

Worrying about your future could dampen retirement celebrations. So, addressing these concerns and understanding how you might create a safety net could take a weight off your shoulders.

As you near retirement, you might worry about how your partner would cope financially if you passed away first, or how you’d fund care services if you needed support.

While a financial plan can’t prevent some things from happening, it could allow you to identify areas of concern and take steps to reduce the effect they could have. So, in the above cases, you might purchase a joint annuity with your pension so you know your partner would continue to receive a reliable income if you passed away and set aside some money to act as a care fund.

5. Working with a financial planner could allow you to take a hands-off approach

Managing your finances in retirement can be very different to handling your household budget when you are working. You might not receive a regular, reliable income, and, for retirees, the change can be difficult to manage or they simply want to take a hands-off approach.

Working with a financial planner means you can rely on someone else to handle your finances on your behalf and inform you if changes are needed.

It could lead to a happier retirement that allows you to focus on living the retirement lifestyle you’ve been looking forward to.

Contact us to talk about how to achieve your desired retirement lifestyle

If you’re nearing retirement, get in touch to talk about what you’re looking forward to and concerns you might have. We could work with you to create a financial plan that gives you confidence and means you’re able to focus on what’s really important – enjoying the next chapter of your life.

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.

Looking beyond the numbers when using a cashflow model

A cashflow model is a valuable tool that lets you understand how the value of your estate and individual assets might change in the future. But, to get the most out of it, you need to look beyond the numbers.

A cashflow model provides a graphical representation of all your assets, such as investments, property and pension, as well as income, expenditures and debt. It forecasts how each of these will change over time.

To start, you’ll need to input information into a cashflow model, such as the value of your assets now, your household spending, or how much you’re contributing to your pension.

To calculate long-term changes, you may need to make certain assumptions too. You might factor in regular wage increases or the projected returns of your pension.

While the outcomes of a cashflow model cannot be guaranteed, it could provide you with a useful overview of your finances and how they might change throughout your lifetime.

With so much data, it’s easy to get bogged down in the numbers. Yet, moving past the figures could help you turn goals into reality and prepare for the unexpected.

Combining a cashflow model with your goals could help form an effective financial plan

A cashflow model provides a snapshot of your finances, and financial planning can help tie this to your goals.

When you think about why you’re saving through a pension, it’s probably the lifestyle that you want to enjoy that comes to mind, rather than the figure you need to save.

So, you might think “I want to retire at 60 and maintain my current lifestyle” rather than “I want to save £500,000 in my pension”.

As a result, it’s important to think about what your lifestyle goals are when using a cashflow model if you want to get the most out of it. When you stop working, your outgoings often change, so in this scenario, you might calculate how much you’d need to maintain your current lifestyle.

You can then add this information to the cashflow model and see what would happen if you withdrew this income from your pension from the age of 60 – is there a chance your pension could fall short? Could you retire sooner and still be financially secure?

By combining your goals with a long-term view of your finances, you can work with your financial planner to create an effective financial plan that’s tailored to you.

A cashflow model could identify potential weaknesses in your current financial plan

As well as goals, your cashflow model can be used to help you address concerns you might have about your financial security and events outside of your control.

For example, if your family rely on your income, you might worry about how you’d cope financially if you were unable to work. Updating the information used to create the cashflow model could help you understand the short- and long-term impact.

You might find you have enough saved in an emergency fund to cover six months of expenses before you’d have to use other assets. So, to create an additional safety net, you may take out appropriate financial protection that would begin to pay a regular income after six months.

Taking an extended break from work may affect long-term goals as well. You might halt pension contributions, which could affect your income when you reach retirement, or use savings that had been earmarked for another use.

Much like how a cashflow model could help you understand your goals, it can also be useful when you want to identify risks or weaknesses in your current financial plan.

A cashflow model could help you make informed financial decisions now

One of the benefits of cashflow modelling is that it may identify potential financial gaps that could affect your future. Being aware of these sooner often means you’re in a better position to take steps to bridge the gaps or adjust your plan.

Let’s say you discover there could be a potential shortfall in retirement because you aren’t contributing enough to your pension. If you identify this 20 years before you plan to retire, a small, regular increase to your contributions could be enough to keep you on track without making changes to your retirement plans. However, if you don’t realise until you reach the milestone, you may have fewer options.

Alternatively, if you find you’re in a better financial position than you expected, you might want to adjust your lifestyle now or update long-term plans.

After finding out you’re comfortably on track to have “enough” saved for retirement, you might decide to start building a nest egg for your child to provide a helping hand when they reach adulthood. If you’re confident in your financial future, you might also feel secure enough to increase your disposable income now and start doing more of the things you enjoy.

Contact us to talk about your long-term finances

Please get in touch if you’d like to talk about creating a long-term financial plan that focuses on your aspirations and addresses concerns you might have about the future.

The Financial Conduct Authority does not regulate cashflow planning.

How do you become an ISA millionaire? Investment returns could be key

The number of people with at least a million pounds in their ISAs is on the rise. If you want to join their ranks, consistency and investing could be key.

An ISA is a tax-efficient way to save or invest. The interest or investment returns added to your ISA won’t be liable for Income Tax or Capital Gains Tax. As a result, they could provide a useful way to cut your tax bill.

In 2024/25, you can add up to £20,000 to ISAs during the tax year but there is no cap on how much you can save during your lifetime. The ISA allowance resets at the start of each tax year, and you cannot carry forward unused allowance.

According to a report in MoneyWeek, the number of ISA millionaires has tripled in just three years. The latest figures show that in 2022/23, there were 3,180 ISA millionaires, compared to 1,030 three years earlier, and just 570 eight years before.

There are also around 7,000 people approaching ISA millionaire status with between £750,000 and £1 million saved or invested.

So, if you want to become an ISA millionaire, what can you do?

Make regular ISA deposits part of your financial plan

As you can’t carry forward unused ISA allowance, missing an opportunity to deposit the full £20,000 allowance could set back your plans to become an ISA millionaire.

Making ISA contributions part of your wider financial plan could help you set a goal and stick to it. You might decide to deposit a lump sum at the start of the tax year when the allowance resets, or spread your deposits across the year by making regular, monthly payments into your ISA.

Remember, the ISA allowance is for each individual. So, you might want to contribute to your partner’s ISA if you’re planning together, or even deposit money into your child’s ISA to lend them a helping hand.

Investing could help you become an ISA millionaire 20 years sooner

Regularly adding money to your ISA is essential if you’re to become an ISA millionaire. But you also need to think about how hard your money is working.

If you deposited the maximum £20,000 into an ISA each tax year, it’d take your contributions 50 years to turn into £1 million. The good news is your deposits could earn money too.

When opting for a Cash ISA, your savings would earn interest. The interest rate varies between providers and the most competitive deals often mean you’ll need to make regular deposits or lock your money away for a defined period.

While the money in your Cash ISA is “safe”, interest rates are typically lower when compared to potential investment returns. So, investing could help you become an ISA millionaire sooner and it’s an option many people choose.

Indeed, according to HMRC, around 12.4 million ISAs were subscribed to in 2022/23, and more than a third were Stocks and Shares ISAs.

The MoneyAge report suggests if someone had contributed the maximum to a Cash ISA every year since they launched in 1999, they’d have around £275,000 based on an average interest rate of just 1.21%.

In contrast, the average annual return of a Stocks and Shares ISA during the same period was 9.64% before fees were applied. If those averages continue, those investing the maximum amount could become an ISA millionaire by 2043 – it’d take cash savers an extra 20 years to reach the milestone.

Keep in mind that investment returns cannot be guaranteed. Market volatility could lead to the value of your investments falling as well as rising. So, it’s important to consider your attitude to risk and circumstances when weighing up your ISA options.

Whether you choose a Cash ISA or a Stocks and Shares ISA, you can benefit from the power of compounding. By leaving the interest or investment returns in your account, they could go on to generate interest or returns of their own. As a result, the pace at which your ISA grows could increase over time.

Consider if investing is right for your goals

While investing could help you become an ISA millionaire, that doesn’t mean it’s automatically right for you.

All investments have some risk, and it’s often advisable to invest with a minimum time frame of five years. As a result, if you’re saving for a short-term goal, a Cash ISA, or another type of savings account, might be better suited to your needs.

So, before you start depositing money into a Stocks and Shares ISA, consider what your goals are and what level of risk is appropriate for you. If you have any questions about investment risk, we’re here to help.

Get in touch to talk about your ISA

If you want to talk to us about how to make the most of your ISA allowance, please get in touch. We’re also here to show you how an ISA could fit into your wider financial plan and support your goals.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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 and should fit in with your overall attitude to risk and financial circumstances.

Investment market update: November 2024

On 5 November 2024, US citizens voted for their next president, and the election had a knock-on effect on investment markets and business prospects around the world.

Republican Party nominee Donald Trump will serve a second term as president of the US. Trump has previously spoken about imposing harsh import tariffs, including a tariff of up to 60% on goods imported from China or a blanket 20% tariff on every US trading partner.

So, it’s unsurprising that the results of the election are being felt across the world. Indeed, Bloomberg’s Commodity Index suggests the prices of industrial metals and commodities have already slumped due to concerns about a “tit-for-tat global trade war”.

UK

The Labour government delivered its Autumn Budget at the end of October, and the repercussions were still being felt at the start of November.

Credit ratings agency Moody’s said the Budget would be an “additional challenge” for public finances as the announcements would do little to boost UK economic growth. It noted there was also a limited buffer if the UK faced a financial shock.

Similarly, S&P stated that public finances would be “constrained” but added that public investment plans could create a more business-friendly environment.

The FTSE 100 dropped to a three-month low on 8 November. This was partly due to retailers suffering losses as it became clear how higher rates of employer National Insurance contributions announced in the Budget could affect profitability. Marks & Spencer saw a 4.5% drop, and Tesco (2.9%), JD Sports (2.7%), and Sainsbury’s (2.5%) all suffered losses too.

On the same day, housebuilder Vistry issued its second profit warning in as many months, after it said cost overruns on building projects were worse than previously thought. This led to its share price tumbling almost 20%.

The headline economic figures released in November indicate the UK is stagnating.

According to the Office for National Statistics (ONS), GDP per head fell 0.1% in the third quarter of 2024 in real terms – the measure is used as an indicator of the country’s living standards.

In addition, ONS figures show inflation increased to 2.3% in the 12 months to October 2024. The rise could mean the Bank of England delays plans to reduce its base interest rate.

Readings from Purchasing Managers’ Indices (PMI) suggest business activity is weakening. However, some businesses may have paused investments and key decisions until the Budget was delivered, so activity could pick up in the final months of 2024.

In October, the British manufacturing PMI had a reading of 49.9 – slightly below the 50 mark that indicates growth. While still in growth territory, the service sector also slowed when compared to a month earlier with a reading of 52.

There’s already speculation about what a Trump presidency will mean for the UK.

The National Institute of Economic and Social Research said the protectionist measures planned by Trump could halve the UK’s economic growth in 2025 and 2026.

Yet, there may be some good news for investors. On the back of Trump’s victory, the pound weakened on 6 November. This led to the FTSE 100 jumping 1.3% as share prices lifted for multinational firms. For example, equipment rental company Ashtead, which would benefit from a strong US economy, saw a 6.6% boost.

Europe

While PMI readings suggest the eurozone economy is improving, it has recorded production falling for 19 consecutive months as of October 2024. The bloc’s two largest economies are playing a role in dragging down the figure as both France and Germany are affected by exports falling and weak demand.

Trump’s victory also had repercussions across Europe.

Shares in European renewable energy companies slid on 6 November as Trump has previously spoken about plans to boost US oil production. Danish wind turbine maker Vestas Wind Systems fell 8% and German solar energy producer SMA Solar Technology was down 10.4%.

Similarly, the threat of tariffs from the US hit German carmakers on 6 November. Porsche was the biggest faller on the German index DAX after it tumbled 7.4%, followed by BMW, Mercedes-Benz, and Volkswagen.

Just days before the US election, official figures showed that just 12,000 new jobs were added to the US economy in October. The figure is far below the 113,000 that economists expected and the 254,000 recorded in September. The low number may be due to businesses holding back decisions until election uncertainty passed, but it may have dealt a blow to the Democratic Party.

On 6 November, the day after the US election, the US dollar had its best day in four years as it climbed 1.5% against a basket of other countries.

In pre-trading on 6 November, shares in Trump Media & Technology were up almost 36%. Similarly, Elon Musk, who is a supporter of Trump, saw his business Tesla receive a 13% boost in premarket trading.

When the US stock market opened, it reached an all-time high. The S&P 500 index was up 1.9% and the Dow Jones benefited from a 3% bump as investors bet on Trump’s policies stimulating economic growth.

US company Disney also saw a boost on 14 November and share prices hit a six-month high. The value of the business increased by almost 10% thanks to the success of films Inside Out 2 and Deadpool & Wolverine.

Inflation in the US continues to be above the 2% target. In the 12 months to October 2024, inflation was 2.6%, up from the 2.4% recorded in September.

Asia

China responded to the threat of Trump tariffs saying there would be no winners if a trade war began. Instead, ambassador Xie Feng said the US and China should focus on mutually beneficial cooperation to achieve many “great and good things”.

It was good news for China’s economy in October, with an official PMI showing factory activity returned to growth, ending five consecutive months of contraction. On 1 November, the news led to Hang Seng in Hong Kong adding 1% and the Shanghai Composite index rising by 0.4%.

Perhaps surprisingly, Japan’s Nikkei index gained as it waited for the outcome of the US general election on 5 November. The index rose 1.9% as a weaker yen boosted Japanese exporters’ overseas earnings.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Research: The perils of chasing stock market “winners”

Following the stocks and shares that have experienced impressive returns can seem like fun and a way to make the most out of your investments.

Yet, a study indicates that following the crowd and investing in companies that are being hyped in the press or among investors could mean you miss out on growth opportunities from other sources.

Top stocks rarely perform well for two consecutive years

Research carried out by Schroders looked at the top 10 performing stocks on the US stock market each year.

Interestingly, in 12 of the past 18 years, not a single stock that was in the top 10 also made it into the top 10 in the following year. Of the other six years, in five of them, only a single company managed to maintain its strong position.

Even staying in the top 100 is rare – an average of 15 companies each year managed to be in the top 100 for two consecutive years. The odds of making it back onto the list in a couple of years are similarly low.

You might be surprised to learn that companies that performed well are more likely to be among the worst-performing stocks a year later.

The research noted that a similar trend can be seen in other markets. In the UK, 11 out of 18 years saw the average top 10 performers move to the bottom half of the performance distribution the next year.

So, if you’ve been hearing about how well a particular stock has been performing, automatically investing in it might not be the right thing to do. It could expose you to more investment volatility than is appropriate for you.

There’s also a risk that companies that are hyped might be overvalued.

The Magnificent Seven is a group of influential technology companies – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla – on the US stock market that has made impressive gains over the last year. However, Schroders found collectively they are twice as expensive as the rest of the market in terms of a multiple of the next 12 months of earnings.

Some companies will deliver these expectations, but others won’t, and identifying which ones will meet targets can be difficult.

3 investing lessons you can learn from the volatility of the top stocks

1. Don’t fall for hype

It can be tempting to invest in a company that’s experienced impressive growth recently. But the Schroders study highlights how these companies can experience a fall just as much as others, and perhaps more severely.

Chasing the “hot” stocks could result in higher costs and lower returns than if you opted for investments that were consistently delivering average returns.

That’s not to say you should avoid investing in popular stocks. Indeed, many investment funds will hold investments in the Magnificent Seven. What’s important is assessing if it’s the right option for you and focusing on long-term gains, rather than short-term rises.

2 Accept the investment market can be volatile

As the research highlights, volatility is part of investing.

As an investor, accepting this can be difficult – you understandably don’t want to see the value of your investments fall. Yet, for most investors, sticking to their long-term plan, even when markets dip, makes financial sense if you take a long-term view.

Historically, markets have delivered growth when you look at performance over a longer time frame, including after sharp drops like those experienced during the pandemic in 2020.

While returns cannot be guaranteed and past performance is not a reliable indicator of future performance, history suggests holding investments and waiting out volatility may be the right course of action for you.

Volatility is why it’s often recommended that you invest with a minimum time frame of five years. This provides time for the ups and downs of the market to smooth out and, hopefully, deliver investment returns.

3. Ensure your investments are diversified

If you invested in just one company that was in the top 10 performing stocks, the research suggests the value could fall within the next year. However, if you spread your investment across multiple stocks, you could reduce the risk of this happening.

Diversifying your investments means investing in a range of assets, sectors, and geographical locations. When one area of your investments experiences a drop, a rise in another could offset this.

This is how investment funds work. A fund would pool your money with that of other investors and then invest in a wide range of assets in line with the fund’s risk profile. So, if you want to diversify your investments, a fund could be a good solution for you.

Invest in a way that reflects your goals and circumstances

If you have any questions about how to invest in a way that’s appropriate for your goals and circumstances, we’re here to help. We can offer ongoing support to ensure your investments continue to reflect your needs. Please contact us to speak to one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.