Retirement fears
loom for HNWIs,
but help is at hand

Wendy Spires, Director of Client Research at findaWEALTHMANAGER.com, explores recent research showing that many affluent individuals have resigned themselves to a lower standard of living in retirement – and explains why that needn’t be the case at all.

We take great pride that since our launch in 2012, findaWEALTHMANAGER.com has matched over 6,000 users to their best-matched wealth managers, helping them and their families towards far brighter financial futures. It’s a sobering thought, then, to consider how worried many of the UK’s affluent are about what lies ahead in their later years.

Recent research has revealed that 27% of the affluent individuals in the UK who are still working believe they will have to put up with a lower standard of living when they are retired, with only 18% believing they will be better off. And, pessimism is running very much higher among those who are higher earners but not yet wealthy (known as HENRYs) and millennials (people born between the early 1980s and mid-1990s). Respectively, 45% and 40% of these cohorts foresee a serious lifestyle downgrade as a pensioner.

Recent research has revealed that 27% of the affluent individuals in the UK who are still working believe they will have to put up with a lower standard of living when they are retired, with only 18% believing they will be better off.

The survey by Canaccord Genuity Wealth Management (one of the organisations on our panel) highlighted tax worries and found that for High Net Worth Individuals, lengthening life expectancies are very much a double-edged sword. Being hit by the Revenue was seen by 26% as the biggest future threat to their wealth, while 18% feared the financial consequences of living past 85.

It really is a shame that less than a fifth of affluent individuals believe they will enjoy an improved standard of living once they retire. After a lifetime of working hard, we should look forward to comfort (and fun!) in what are supposed to be our golden years.

How well-founded these low expectations of retirement actually are is debateable, however. We British aren’t naturally the most optimistic bunch, so let’s unpick a few of the findings.

Beware longevity risk

The survey respondents were right to focus on the risks that come with people living longer than ever today. Average life expectancy has been tracking up for many years and, according to Office for National Statistics forecasts, in 2014 to 2016 a man in the UK aged 65 had an average further 18.5 years of life remaining and a woman 20.9 years.

All the implications around this trend are rather ironically called “longevity risk” by pension funds, but savers would do well to bear the term in mind. Just as many pension funds and schemes did not factor in a proliferation of nonagenarians, so too have many individuals neglected to plan for funding three or perhaps even four decades in retirement.

Just as many pension funds and schemes did not factor in a proliferation of nonagenarians, so too have many individuals neglected to plan for funding three or perhaps even four decades in retirement.

In short, the savvier among us are facing up to the very real possibility that they may well outlive their money, and hopefully taking ameliorative action. The less clued-up are, frankly, heading for disaster. No-one wants to stint themselves in the earlier stage of their retirement, but the prospect of running out of money towards the end really doesn’t bear thinking about.

Pensions play a pivotal role

Where I would argue the survey participants were slightly off the mark, however, was in where they were placing faith for their financial security in retirement. Some 32% of HNWIs said property would play the most important role in building their long-term wealth, against only 18% who saw their pension playing a star role.

I believe this shows a great underestimation of the value of pensions as way to build wealth.

While bricks and mortar are a perennially popular way of holding wealth and rising house prices have come to be seen as almost a given, the wise should remember that they are not. Nor is it beyond the realms of imagination that punitive taxes on second properties could come into play if a significant lurch to the Left occurred politically.

There are a multitude of ways to make sure the money you put aside for your retirement is working as hard as it possibly can – and, alongside our wealth manager partners, we have produced an abundance of content to help you maximise your investment returns and minimise your tax liabilities.

More importantly, the government offers very generous tax reliefs on pension savings – even for those who have built up very significant pots indeed. There is currently a £1m lifetime pension allowance before higher taxes are incurred. Holders of larger amounts of savings can even obtain lifetime allowance protection.

There are a multitude of ways to make sure the money you put aside for your retirement is working as hard as it possibly can – and, alongside our wealth manager partners, we have produced an abundance of content to help you maximise your investment returns and minimise your tax liabilities.

The following pieces will help set you on the right path. Once you are ready to start thinking more seriously about the retirement strategies they describe, please don’t hesitate to contact the findaWEALTHMANAGER.com team to discuss your needs.

Alternatively, click the banner below and find out which firm is right for you.

Some further retirement reading:

The Retirement Risks Investors Cannot Afford to Ignore

Guaranteeing a Retirement Income via an Investment Portfolio

Putting HNW Pension Planning Under the Microscope

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