Retire Invest Summer 2020

Planning towards your century The extraordinary fundraising achievements of the 100 year old Captain Tom Moore have highlighted both how long some of us will continue to lead active and fruitful lives, and also how much the quality of such a long life will depend on how well we’ve planned for it. The number of people who celebrate their 100th birthday has quadrupled in the last 30 years, according to the Office of National Statistics (ONS). Pre Covid-19 this trend looked likely to continue, with the ONS forecasting that around 19% of all new-born girls (and 14% of all new-born boys) will become centenarians. An ageing population is often seen as a costly challenge, both for the State (in terms of State pension and health costs) and individuals, who may need to work longer and save more to ensure a decent standard of living in retirement. People may also need to build savings for longer to cover future care costs, if they fall ill or need more help with basic living activities later in life. On the other hand, extended later life can also bring opportunities – albeit ones we need to prepare for. Creating the right mix of income to sustain you into later life will be key to managing this shift and maintaining it for as long as you need it. Planning that far ahead is never easy, so professional financial advice should be your first port of call. If you are drawing up a financial plan to see you through to your late 90s, here are some straightforward practical steps to consider: ■ ■ Be flexible: Financial plans and your attitude to them should be sufficiently flexible to cope with unexpected changes. As we’ve seen with the Covid-19 crisis, stock market falls may have had an impact on your portfolio and pensions, so you may need to adjust your expectations. ■ ■ Start saving early: The longer your money is invested, the more it should be worth. Retirement may seem a long way off if you are in your 20s and 30s, but money put aside now can make a difference to your financial wellbeing in your 70s or 80s. ■ ■ Know what you have: Pensions are likely to be the cornerstone of your retirement plan, and they offer valuable tax relief. Keep track of your various pensions and get up to date valuations of your State pension entitlement. ■ ■ Maximise savings: If you get a pay rise, increase the amount that you pay into your pension so your savings keep pace with your income. ■ ■ Review essential bills and additional spending: If you are able to enjoy a healthier and more active later life this may require more funds for leisure activities or holidays. Judicious cash flow planning can help you gauge how much you may need to save for any given stage. One lesson we can learn from Captain Tom – there’s always scope for something new. B The value of your investments and the 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. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. Tax rises on the way? The fallout from Covid-19 has created a large bill for the Government…which ultimately means the taxpayer. When the Chancellor launched the Self- Employed Income Support Scheme, he commented that “it is now much harder to justify the inconsistent contributions between people of different employment statuses”. The comment was widely seen as a hint that the self-employed could soon face higher national insurance contributions (NICs), bringing the amount they pay closer to the level paid by employees. A rise in the NICs rate would be unlikely to be the only tax increase. Shortly after Rishi Sunak’s announcement, the Office for Budget Responsibility (OBR) revealed an estimate that Covid-19 would lead to the Government borrowing £273 billion in the current financial year. That’s almost five times the figure it had projected at the time of the spring Budget. The Coronavirus Job Retention Scheme has been extended by four months since the OBR’s April calculations, so its next borrowing estimate could be over £350 billion. The Government won the December election with a manifesto commitment that it would “not raise the rate of income tax, VAT or National Insurance”. If it keeps to that pledge, then it could be forced to look to areas such as pension tax relief for extra revenue. Forewarned is forearmed. B The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. FINANCIAL PLANNING TAX Retirement may seem a long way off...but money put aside now can make a difference to your financial wellbeing in your 70s and 80s. C r ed i t: g v ic t o ri a /S h u t te r st o c k. c o m Credit: MemoryMan/Shutterstock.com