One of the big challenges people have is trying to figure out what size of a pension they “might” come out with when they retire. The problem is that this can be over a long time, hence the confusion.
MAP has developed a simplified cash flow model, shown below, which is not difficult to understand and use, so long as you use reasonable parameters:
- Annual Growth: We keep this as a simple 6% p/annum and if we see actual rates going down, we would reduce this accordingly. The rate of growth used should always be a pessimistic one that “should” be achievable; otherwise returns will never reach anywhere near their targets.
- Withdrawals: We always work on the basis that people will want to withdraw their 25% tax-free cash from their pension. This can easily be invested rather than placed in a bank account (or spent) and withdrawals can then be made from it when required. It is tax-free, so it provides a cushion if required, on top of the remaining pension.
- State Pension: We work to the basic State pension of £8,100 per year at age 65, but suggest everyone contacts DWP and gets their actual pension forecast based on their own contribution levels.
This is an example of our cash flow model, and used properly, it can:
- Help you plan;
- Monitor your progress to achieve your target/goal; and
- Be adapted to changing circumstances.
The name of our company is Money Advice & Planning, because we give money advice with planning. Just like the love and marriage, you can’t have one without the other.
If you are going to plan for something, like a comfortable retirement, you cannot just do this exercise as a one-off and hope everything will work out ok. You need to work at it over a long period, otherwise it will falter at some point. Alternatively, call MAP and we can work it for you.
For further information on any aspect of financial advice and how MAP may be able to assist you, please contact us on 0345 241 1808 or email us at: enquiries@mapfinances.co.uk.
The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.
