Having heard Paul Simon’s announcement that he was going to stop performing, I thought as a tribute I would do a piece loosely based upon his song, ‘50 ways to leave your lover’.
I was going to list 50 ways to draw your pension; if Paul was a UK citizen he may now be considering how to draw his. However it quickly occurred to me that the number of ways to draw your pension is much greater than 50.
List all the ways to take money from your pension and then consider using a part of a pension pot for a different way, how many have you got to? You can only leave one lover, but many people have several pensions and may come to different decisions for each. What if they have DB pensions or even that one of their DB scheme permits partial transfers?
The number of ways of drawing funds from a pension is very large; the permutations in which they can be combined are countless. This is the magic of pension freedoms; for each person a mix and match approach can be adapted to suit their wants and needs.
However, retirement income is not just generated by pension savings. Almost every other component of wealth can be used to generate retirement income. Money held in an ISA, an insurance bond, shares, and other investments can all be drawn down. The art however is doing so and avoiding unnecessary taxes and retaining tax advantaged investments for as long as possible. There may also be interest and dividends that are payable. There may be businesses that can be sold, or involvement with which can be rundown while still drawing an income. Again knowledge of the appropriate taxes and how to avoid them is essential.
What about the individual; will they continue to work part-time? I know of one individual who whilst his neighbours are at work, walks their dogs. I don’t know about you but it appears that there are now more people in their late 60’s and above than teenagers delivering newspapers. These roles generate retirement income while giving the retiree purpose and an opportunity to keep active.
The vast majority of those who have, or who are about to retire, own their own home. We often talk of using the proceeds of downsizing to invest for future income and the use of equity release to augment retirement income. However, there are other ways of using a home for additional income.
The obvious one is the renting out of a room. Remember it is possible to receive up to £7,500 a year before income tax is paid on the income. I know of a person who has gone further and converted their garage into a self contained bed sit which they rent out.
Near the centre of Croydon, there are many residential homes with drives. Various planning regimes over the years have restricted the number of office car parking spaces leading to exorbitant car parking fees in the town centre. It is not uncommon for those house owners to ‘rent out’ their drives to office commuters. I am sure this is also a common practice elsewhere creating another possible source of retirement income.
Retirement is changing. We are seeing more and more working or volunteering well into their retirement. This is often out of choice rather than necessity.
However, many will not be able to meet their retirement spending from their pension savings and State pension alone. They need to use other sources of income to meet their spending wants and needs. When approaching retirement, clients are approaching the pinnacle of their wealth. Then it is a case of running down their wealth in the most efficient manner to deliver the retirement dreams they aspire to.
Every customer will have different components of wealth, different retirement obligations and retirement dreams. They will have some income from their State pension, but they may not be aware of other alternatives open to them to generate more income to meet their obligations and needs. This makes retirement income advice, in my opinion, the most rewarding part of financial planning.
Retirement is a new chapter in a person’s life, as is life after leaving a lover. Fortunately there are far more than 50 ways of delivering the income needed which makes every client solution different.
Bob Champion is chairman of the Later Life Academy (LLA)