Retirement planning - Close Brothers' financial planner Simon Williams answers your questions

MaevesGran

I'm divorced, 70 years old, and have pension funds in two different pension plans. I wish to combine them and cash them in for an annuity this year. How do I find out how to get the best annuity - i.e. the largest possible amount of money per year to add to my state pension? I have no idea where to start.

The first question to ask yourself is what type of income do you need – regular income (like your State Pension) or the ability to take capital as and when needed (income drawdown). If you need regular income, then an annuity will provide this. You need to search the open market to find the best annuity provider. There can easily be about 15% difference between the best and the worst annuity provider. Speak with a Financial Adviser if you are in any doubt or look at the annuity comparison tool on the money advice service website. Buying an annuity is like buying a car; the more options you have, the more expensive it is. It is essential that you take into consideration your health. There are some providers that concentrate on individuals with different medical situations.

Kazza1

I am already receiving my state pension and have a small pension from my employer. If I cash it in will it affect my state pension?

It won’t affect your State Pension. You receive a personal allowance of £11,850 for the 2018/19 tax year. This is the amount of income that you can receive without paying any tax. Depending on the size of the pension pot, some of the income will be taxable. You may want to consider phasing this over a couple of tax years, depending on the size of the pension pot and your available personal allowance. 25% of the pension pot will be tax free.

EllenT

Assuming there's enough pension income to cover everyday outgoings, how much capital should a couple in their early sixties put away in a 'rainy day' fund and where might this be best invested?

You always need access to a slush fund for your typical day to day items; holidays, helping children out etc. A simple rule of thumb is 3/6 months of expenditure. In addition to this, if you have any known expenditure in the next 2-4 years, then look at holding this in cash savings. Inflation will be one of your main risks going forward. You need to maintain the buying power of your capital, as year on year everything will get more expensive. If you have any capital that is not needed for at least 4/5 years, you should consider if you can invest it for the future.

Querty

We have a reasonably healthy sum invested with a FA who is excellent.
I am in my mid 60’s and have just started drawing £10k/year from this. I know that this will increase year on year with inflation/cost of living.
However it seems to me that there should still be a considerable amount in the kitty by the time I die, providing of course, I don’t need years in a care home.
Should I be using more now whilst I can still travel etc.?

The starting point is to build a financial plan with your financial adviser, to see how the cost of your lifestyle is supported and maintained throughout your lifetime. They will discuss with you suitable assumptions for growth, inflation etc. You are likely to be more active now and have the desire to travel, so I would maximise this whilst you have the opportunity. However, you do not want to run out of capital, which is where the cash flow modelling is essential. Do this first, before you consider the type of investment strategy required and the rate of withdrawal.

seasalt

I have three pensions from three different employers over the years but all of them are small and I am worried about how much they will really help when I retire

I have some savings as does my husband. We had originally intended to invest them as a deposit for a buy to let flat (some of our friends have done this as their 'pension plans') but for various reasons this didn't happen and then the new stamp duty rules came in and made it impossible. Banks pay next to no interest and I worry that we are not using what we have wisely enough while we can. We are fairly risk averse. What's the best thing to do in these circumstances?

Firstly you need to understand the cost of your lifestyle. Without this information you will not be able to make any sensible decisions. I would also request up to date valuations/projections of your pensions, so you understand what you have got. I would also request a State Pension Forecast. You need to hold some cash savings, perhaps 3-6 months of expenditure or an amount that you feel comfortable. However, cash savings may not keep pace with inflation, so it is important that you consider investing for your future, so that your capital will have the opportunity for growth over the medium to long term, bearing in mind the risks that come with investments of values falling as well as rising. Just holding cash savings is not a low risk strategy, as your capital is at risk from inflation. If you are in any doubt, I would speak with a Financial Planner who can talk through your options and advise you appropriately.

kamat

We are about ten years away from retirement. We have paid off our mortgage but otherwise have little in the way of savings and our pension prospects are not particularly good. The most obvious long term solution is to downsize when we retire and release equity that way to live on. But it's hard to know how much we will end up with and also whether this is a good idea or not. I would welcome your thoughts

Firstly you need to understand the cost of your lifestyle. You will need to support this throughout retirement. It is not too late to make pension contributions. Any contribution you make will receive tax relief at 20%/40% tax, depending on your tax status. Cash savings are fine for the short term, but you should consider investing for the future. If you are going to rely on your property, I would consider the value of your property now, the cost of moving and purchase to understand your potential situation. You must be realistic. There are only two variables that you can control; reduce your lifestyle costs or save more. You need to understand where you are now and how much you need. The difference will be your saving goal.

kamat

Also how will this work if one of us needs to pay for care?

Some people will choose to hold a property tenants in common, so that you both legally own a share of the property. There is still a lot of uncertainty about how much care will cost and therefore it is very hard to plan, when you don’t know the cost or if you will need it.

barnowl

This might be a tricky question to answer as each person and lifestyle is different, but how much money would you suggest I save for retirement? I'll only really have my state pension once retirement age hits and I live alone.

I do have a small amount of savings already, but I feel like I should have more tucked away just in case, especially if I end up needing care etc. My children certainly wouldn't have enough to cover that

As you say, the cost of everyone’s lifestyle is different. Understanding the cost of yours is essential. You need to consider your health and life expectancy to ensure that you have sufficient savings. You might need to delay retirement, to ensure that you have accumulated enough. Depending on the type of job, you might want to consider a phased retirement, so you keep working in a way that enables you to maintain a good balance. This could supplement your State Pension. If you own your property, there is the potential to downsize or consider releasing capital, however I would suggest that this is done as a last resort and you seek appropriate financial advice.