Updated 03 September 2020
As you try to save more for retirement, your liquid assets may start to run dry. Make sure you have money on tap as well as plenty in the tank.
Craig, who plans to downsize when he retires, has been doing up an old house. He’s pretty confident at DIY, but one thing he did need expert help with was the plumbing. It’s not easy fixing up a watertight system that works exactly as and when you need it – so Craig leaves his plumber to it while he goes to see his financial adviser.
Craig knows he needs to save for retirement, but his youngest child is still of school age and he wants to keep some of his savings accessible for emergencies. His IFA suggests a spread of short and medium-term investments held outside of his pension, that he could tap into before he hits the pensionable age of 55.
A spending plan
Watching the plumber fit the water meter gave Craig a sinking feeling. Sometimes he feels like he’s spending money like water. His IFA helps him map out his likely spending patterns over the next five years, so he can see what more he needs to do to achieve the retirement lifestyle he wants.
One way Craig can top up his pension pot is by moving some of his ISAs into it. Although he wants to keep some savings for emergencies, he can transfer the rest and they’ll benefit from tax relief at his marginal rate: a welcome flood of free money.
The assets that Craig continues to hold outside his pension could still be vulnerable to tax. His financial adviser reminds him to use a stocks & shares ISA to wrap the shares that he owns, so that any gains will be sheltered from capital gains tax.
Like the hot water and radiators in his house, Craig’s financial plan is designed to deliver automatically when needed. He wants to have money on tap as required, but growing in the meantime. In his early retirement he would like flexibility, so wants to set up a pension drawdown scheme. However, aware that this could be stressful as he gets older, he plans to buy an annuity later as a more secure, low-maintenance option. He calls this dual approach his ‘combination boiler’.
Craig has found that financial planning can be as tricky to get right as plumbing. And yet it’s the same simple principle: setting up a system so that money flows to the right places whenever it’s required. Now he knows he’ll be feeling flush well into old age.
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