Investing

As life expectancy improves, so does the length of time needed to extend your income in retirement. Taking the appropriate steps can help you to enjoy the lifestyle you want for as long as you require.

Today, most people can expect to live longer than generations previously. Data by the UK Government show the average life expectancy of men aged 65 in 2019 at 83.8 and women at 86.1 – the highest ever recorded at this age. They counted more than 600,000 Britons aged over 90 and 13,330 centenarians, 13% more than the previous year.

While this is good news, improved life expectancy has some drawbacks. Simply put, can we afford the costs of living longer?.

You can evaluate whether your resources are on track to last your life by thinking about these five key questions.

How much retirement income do you need?.

Do you want just enough every month to live comfortably in your retirement, with perhaps a little extra to allow for some luxury now and then? Would a moderate income be sufficient as long as you have access to “rainy day” or emergency funds?.
If you are still working, will your savings and pensions cover your lifestyle needs, or are you planning to cut back when you stop working?.

Remember to consider the impact of inflation on minimizing your spending power yearly. As an example, you spend EUR5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you would need about EUR6,720 a month to maintain the same spending, and EUR9,030 in 20 years.

2. How much would you like to leave behind?

If you want to leave a lasting legacy for your family or other heirs, you must ensure you do not spend it in your own lifetime without compromising your own quality of life right now.
A holistic approach to financial planning, which takes estate planning into account together with your wealth management and tax planning, can prove invaluable.

3. How can you make your investments and savings last?

You should assess whether your investments, assets and savings are working as hard as they can for you, and are protected from unnecessary taxation.

As an example, are you making the most of the tax-efficient opportunities available in your country of residence, or are you holding UK assets that attract higher taxation and possibly even deliver less growth?

If you are a business owner, have you started planning a tax-efficient exit strategy to get the best out of your years of hard work?

There are also considerations of currency. Taking income in sterling while spending euros in your day-to-day life makes your money susceptible to conversion fees and exchange rate risks. Explore arrangements that offer the flexibility to hold investments in more than one currency and convert if it suits you.

Don’t underestimate inflation here too. While it is appealing to choose low-risk investments in your later years, your capital still needs to keep pace with the cost of living, and cash in the bank is unlikely to do this. Your Lawsons Equity can recommend a diversified investment strategy to meet your situation, goals and risk tolerance.

4. How can you get the most out of your pensions?

For most people, pensions are the key to funding retirement, so you have to take extreme care to do what is right for you. The UK State Pension, which is currently worth a maximum of ₤ 9,350 per year, is probably not going to fulfil your requirements alone.

While you should assess your options, your best approach could be to take no action at all, especially if you have a “final salary” pension that guarantees an income for life. In any case, beware of the possibility of “liberating” your pensions before you are 55, as they are likely to be scams.

Retired expatriates can gain from transferring UK pensions to an EU/EAA-based Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvesting a lump sum into arrangements that comply with your residence. As well as tax efficiency, this can provide estate planning advantages and flexibility to take income in sterling or euros. However, there are many variations in products and jurisdictions that may affect the advantages

If both you and the QROPS are based in the EU/EEA (European Economic Area), transfers into QROPS are currently tax-free. Otherwise, the UK government charges a 25% ‘overseas transfer charge’. If, as many are speculating, the UK extends this charge to the EU/EEA region after the Brexit transition period ends in December, there could be limited time to transfer without tax penalties.

So if you decide a transfer is suitable for you, take action as soon as possible, bearing in mind that transfers can take months to finalise to lock in today’s benefits and prevent unnecessary taxation.

Take personalised, UK-regulated pension advice to find the most suitable approach to your goals and circumstances.

5. How can you limit the impacts of taxation?

An undesired side effect of rising life expectancy is a general trend for tax increases, as governments struggle to finance escalating pension and health care services for ageing populations.

Higher taxation can pose a serious threat to your financial security in retirement. Look for compliant arrangements that are offered to expatriates in your country of residence, which can significantly minimise taxation, making your money go further for you and potentially your chosen heirs. For the best results, you should seek personalised, cross-border advice.

Regardless of your stage of life, good financial planning can help you afford the lifestyle you want for as long as you want, so you can focus on enjoying your time abroad. To schedule a no obligation initial consultation with one of our financial advisors, click here.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licenced by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries click here

In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

Identifying your investment objectives is a lifelong process. If it is not properly implemented through an appropriate investment strategy, a total wealth solution has no value. If you have an adequate amount of money in your cash savings account – enough to cover you for at least six months – and desire your money to grow in the long run, you should take into consideration investing some of it.

Investing is a life long process, and the earlier you start, the better off you may be in the long term. Irrespective of the financial stage of life you are in, you will need to take into account what your investment goals are, how long you have to pursue each objective, and how comfortable you are with risk.

Future objectives and current finances

The appropriate savings or investments for you will depend on how willing you are to take risks, and on your future goals and current finances. Investing is separate from simply saving money, as both your potential returns and losses are greater.

If you’re retiring in the next one to two years, as an example, it might not be the correct time to put all your savings into a high-risk investment. You may be better off choosing something like a cash account or bonds that will safeguard the bulk of your money, while putting just a modest sum into a more growth-focused option like shares.

Deciding on your investments and savings

You may be a few months away from placing a deposit on your first property purchase. Here, you might be contemplating cash or term deposits. You might also opt for a more conservative investment that keeps your savings safe in the short term.

Alternatively, if you have just recently begun saving and working, you may be willing to invest a more substantial sum of your money into a higher-risk investment with higher potential returns, recognizing you won’t need to access it in the immediate future.

Diverse types of investment choices

You should consider various different investment options, if appropriate. A diverse portfolio can help safeguard your wealth from market corrections. There are four main types of investments, also called ‘asset classes’, each with their own benefits and risks.

These are:

• Cash – savings put in a bank or building society account
• Shares – investors buy a stake in a company
• Property – investors invest in a physical building, whether residential or commercial
• Fixed interest securities (also called ‘bonds’) – investors loan their money to a company or government

Defensive Investments

Defensive investments prioritize generating regular income, rather than growing in value over time. The two most common types of defensive investments are cash and fixed interest.

Cash investments include:

Savings accounts with high interest rates

The main advantage of a cash investment is that it provides steady, regular income through interest payments. It is the least risky type of investment. It is possible the value of your cash could decrease over time, even though its pound figure remains the same. This may occur if the cost of services and goods rises too quickly (also known as ‘inflation’), meaning your money buys less than it used to.

Fixed-interest investments include:

Term deposits, government bonds, corporate bonds

A term deposit enables you to earn interest on your savings at a comparable, or slightly higher, rate than a cash account (depending on the amount and term you invest for), but it also locks up your money for the length of the ‘term’, so you can’t be tempted to spend it.

Bonds are essentially loans to governments or companies that sell them to investors for a fixed time period and pay them a regular interest rate. At the end of that period, the price of the bond is paid back to the investor.

Bonds are considered a low-risk investment. Certain types can decrease in value over time, so you could potentially get back less money than you originally paid.

Growth investments

Growth investments intend to increase in value with time and potentially generate income. Growth investments may deliver higher returns than defensive investments, because their prices can rise and fall considerably. You also have a stronger chance of losing money.

Shares and property are the two most common types of growth investments.

At its most basic, a single share represents a single unit of ownership in a company. Shares are typically bought and sold on a stock exchange.

Because their value can rise, shares are considered growth investments. You may make money by selling shares for an increased price than you initially pay for them.

If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.

The value of shares may also fall below the price you pay for them. Prices can be volatile from day to day, and shares are generally best suited to long-term investors, who are comfortable withstanding these downs and ups.

They have in the past delivered better returns than other assets. Shares are considered one of the riskiest types of investment.

Returns are the profit you generate from investments.

Depending on where you put your money, it could be paid in different ways:

• Dividends (from shares).
• Rent (from properties).
• Interest (from cash deposits and fixed interest securities).

The difference between the price you pay and the price you sell for makes up your capital gains or losses.

Lawsons Equity are here to satisfy our clients by recommending the highest quality products and services in line with our clients’ aspirations, expectations and objectives, whether these are over the medium or long term, and in accordance with a desire to generate a regular income and/or capital growth. To schedule a no obligation initial consultation with one of our financial advisors, click here.

We look forward to hearing from you.

Source data:.

[1] YouGov Plc carried out the research online across a total of 5,757 adults aged 18+. Data was weighted to be representative of the GB population. Fieldwork was carried out 26 March– 11 April 2020. YouGov Plc carried out an additional survey online across a total of 2,251 adults aged 18+. Data was weighted to be representative of the GB population. Fieldwork was carried out 11 March– 12 May 2020.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested.

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries, click here.

In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.