Should I use an IFA?

Rymo_2

Hi,

I am 46, married working full time. I wish to retire from full time work at 62.

At present I have £65,000 in a private pension, am contributing £110 per month with £220 per month employer contribution into a DC pension (total £330 per month) with a large insurer.

I have £10,500 in S&S ISA, individual UK shares (9 individual companies), and £6,500 in cash ISA, I intend to use my ISA allowance fully till I'm 62 (S&S and Cash each year).

We have no mortgage and no debts. We have life, and Income protection cover through my employer.

Will consulting an IFA bring value to my plans, will they be able to help me achieve my aims?

dunstonh

At present I have £65,000 in a private pension, am contributing £110 per month with £220 per month employer contribution into a DC pension (total £330 per month) with a large insurer.

£65k at age 46 aiming for 62 retirement is on the low side. Even if you keep that up and max out ISAs, it will still be tight unless you intend to have a frugal retirement.

Will consulting an IFA bring value to my plans, will they be able to help me achieve my aims?

An IFA can do is make sure you are aware if your objectives are realistic and let you know how much you need to achieve them and what to do to achieve them. They may also be aware of things you may not know. So, it really depends on your knowledge and requirements.

Rymo_2

Thanks Dunstonh, clear info. I wasn't sure wether to approach an IFA or not.

I am leaning towards leaving it at present and then getting advice when I wish to convert my pension savings into an income.

My plan is to live on my cash ISA and S&S ISA (dividends and possibly sell some holdings) between 62 and 67 and then convert my pension (after advice) when my State pension is about to kick in.

Concerns are the cost of realising my pension, I believe an IFA will charge between 1.5% and 5% of my fund value for doing this.

I will get my own quotes and then see what a local IFA can come up with.

fairleads

Rymo wrote: »

Hi,

I am 46, married working full time. I wish to retire from full time work at 62.

At present I have £65,000 in a private pension, am contributing £110 per month with £220 per month employer contribution into a DC pension (total £330 per month) with a large insurer.

I have £10,500 in S&S ISA, individual UK shares (9 individual companies), and £6,500 in cash ISA, I intend to use my ISA allowance fully till I'm 62 (S&S and Cash each year).

We have no mortgage and no debts. We have life, and Income protection cover through my employer.

Will consulting an IFA bring value to my plans, will they be able to help me achieve my aims?

Assuming your contributions increase in line with inflation and the fund grows at a real return of 3% p/a then at age 62 your pot should have grown to around 185K. Assume annuity drawdown @ 5.9% to provide annual income around 10.7K p/a. These figures are today's values.

dunstonh

Concerns are the cost of realising my pension, I believe an IFA will charge between 1.5% and 5% of my fund value for doing this.

Those sorts of figures wont be accurate. Closer to 1-1.5%. However, at this moment, if it was annuity, then the provider pays 1-1.5% (you dont get any saving by doing it yourself, the provider just keeps the 1.5% for themselves). What it will be in 20 odd years is anyones guess and nothing that should concern you now.

Rymo_2

I'm beginning to feel quite optimistic, i'm pretty sure the ISAs will last me the 5 years between 62 and 67, if i can achieve £15k - £20k per annum for that period thats more disposable than I have after savings now!

If I allow growth of 0.5% above inflation for 16 years I make the total of the ISAs appx £ 196K even I can't blow that much in 5 years!

Once 67 any ISA monies left will suppliment my pensions.

gadgetmind

Rymo wrote: »

If I allow growth of 0.5% above inflation for 16 years I make the total of the ISAs appx £ 196K even I can't blow that much in 5 years!

An investment in a balanced portfolio of equities and bonds has historically delivered 4% above inflation over the long term.

I suggest you -
1) Forget cash ISAs unless you need the cash before retirement.
2) Go instead for S&S ISAs but ensure you understand how to construct a portfolio.
3) Read "Smarter Investing" by Tim Hale. He explains about portfolios and has a check list of whether you might need an IFA.
4) Consider increasing pension contributions even if it means trimming back on ISAs, but you will still need the ISAs. Tax relif is good.
5) Create a spreadsheet with a column for every year between now and retirement. Then create rows that track pension and ISA value year-by-year. You can then have another row for correcting figures into real terms, rows for modelling drawdown from pensions and ISAs, tax, and much more. This will take time to get right but is well worth doing.

You clearly aren't risk averse (9 individual companies isn't enough IMO!) but maybe need to research portfolio theory and how to model likely future outcomes.

Rymo_2

Thanks All,

Gadgetmind, that was one concern of mine I was considering possibly getting an IFAs opinion on, is having too much in cash a mistake or is having a sizeable amount in cash the ultimate safety play, even with the effect of inflation. If I keep on top of things and make sure I'm in the best paying accounts, inflation damage to the purchasing power of the cash should be minimal.

I was also concerned about having too much in pensions as although the tax relief is very good, they do seem rather inflexible and you are at the mercy of annuity / conditions at the time you come to realise a pension. I believe at THIS point advice from an IFA is essential.

dunstonh

I was also concerned about having too much in pensions as although the tax relief is very good, they do seem rather inflexible and you are at the mercy of annuity / conditions at the time you come to realise a pension. I believe at THIS point advice from an IFA is essential.

You dont have to buy an annuity any more. You can run them with the same sort of investments as an ISA and take income whilst remaining invested.

gadgetmind

Rymo wrote: »

is having too much in cash a mistake

Given how far you are from retirement, yes IMO. You need a buffer of between 3 and 12 months of essential income, and ideally want it index linked, so NS&I bonds when they are next available.

Going into retirement, how much you need depends on your income streams and your needs. If you're relying on dividend income from your equities, then many say a three year buffer is required unless you can tighten your belt. If you use Investment Trusts, these have a reserve so less buffer is needed.

But the key message is that cash is for emergencies, income levelling and portfolio balancing. You need to decide how much emergency cash you need now, how much going into retirement, and how much in various ISA/pension portfolios (if any!) for rebalancing.

If I keep on top of things and make sure I'm in the best paying accounts, inflation damage to the purchasing power of the cash should be minimal.

You'll struggle to beat inflation and cash historically under-performs equities, bonds, and property. Yes, you need some cash, but don't hold more than you need, and hold what you do hold with care.

I was also concerned about having too much in pensions as although the tax relief is very good, they do seem rather inflexible and you are at the mercy of annuity / conditions at the time you come to realise a pension. I believe at THIS point advice from an IFA is essential.

Yes, there are limits. You only get 25% tax free, and the rest goes towards and annuity or for drawdown. I suggest you read a *lot* about drawdown before deciding as you'll then be able to roughly model the three periods in question, which are wealth accumulation, early retirement bridging, and post state pension.

The time when an IFA is essential is if you are inclined towards and annuity or if you really don't feel you can model all of this yourself. However, my experience is that my understanding of matter was 50x greater when I forced myself to do the research than when I asked an IFA to plan things, and being a control freak, I'm much happier now.

Rymo_2

That's very interesting dunstonh, I was under the impression that was only for very large pots that could guarantee a set amount of income in excess of a certain regulated amount.

If that is a possibility for the likes of me and the possible pot I will end up with then that changes the way I look at pensions.