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Zusammenfassung von Your Retirement Salary

Name: Your Retirement Salary
Rating: 3.7 (102 reviews)
Author: Richard Dyson and Richard Evans

Richard Dyson and Richard Evans

How to Use Your Lifetime of Pension Savings to Pay Yourself an Income in Your Retirement

3.7 (102 Bewertungen)

22 Min.

Kurz zusammengefasst

'Your Retirement Salary' by Richard Dyson and Richard Evans is a practical guide for retirees and those planning for retirement, providing helpful advice on managing money and maximising income in later life.

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What’s in it for me? A no-nonsense guide to pensions.

Retirement is a hard-earned reward for a lifetime’s work. Pensions, however, aren’t what they once were. Today, individuals around the world fret about making ends meet once their working lives come to an end. Their biggest worry? Stretching their savings to cover increasingly long lifespans.

Then there are the vexed questions of taxation, investment portfolios and annual withdrawals. Throw technical jargon like “annuities” and “natural yields” into the equation and it’s no wonder people feel overwhelmed.

It’s time for some help. These blinks help clear a path through the minefield of retirement. Along the way, you’ll find out how the British pension system works, as well as plenty of actionable insights you can apply to your own retirement, wherever you live.

In these blinks, you’ll learn

why retirees are increasingly shouldering the burden of planning for retirement;
how to stick to a safe withdrawal rate and avoid breaking the bank; and
what to look out for if you’re thinking about remortgaging your home.

Pensions mean different things to different people and different generations.

What is a pension? Well, there are a couple of definitions.

The first is simple: a pension is the money you live on once you have retired. A retiree might, for example, say something like, “I can just about get by on my weekly $300 pension.”

The second is that its a sum of money or an investment portfolio earmarked for retirement. This is also called a pension pot.

That’s basically everything you have accumulated over the course of your working life. It can include savings from your salary, investments, and contributions from your employer. A pension pot isn’t the same as an income – it’s a pool of money put aside during your working life that you will need, somehow, to turn into an income when you retire.

Older generations also have their own understanding of pensions. If you worked for a big company in the 1960s, 1970s or 1980s, you’ll probably be familiar with the concept of a “gold-watch retirement.” This refers to the custom of giving long-standing employees a golden watch on their last day of work to thank them for their service.

This went hand-in-hand with a more paternalistic style of employment. When workers came to the end of their careers, they collected their watch, went home and put their feet up. A good part of what they had earned in wages in one month became their pension in the next. This was known as a defined benefit or final salary pension.

Say you worked for 25 years with the same company and were earning $67,000 a year when you retired. Companies “defined” your pension by multiplying a percentage of your final salary by the number of years served. Typically, that might be 2.5 percent. Multiply that by 25 and you get a pension of $41,875 a year.

This type of pension secured a comfortable retirement for millions of people in countries like the UK and the US. Some retirees in their seventies and eighties are still reaping the rewards of this generous arrangement today. It’s a very different picture for their children, however, let alone their grandchildren. Why? Let’s find out.

Longer lifespans and falling interest rates ended the golden age of pensions.

The substantial pension arrangements enjoyed by the postwar generation came to an end in the 1980s. Two factors explain this development: increasing average life expectancy and falling returns on investments.

In the past, people didn’t live nearly as long as most people in the developed world do today. On average, anyone born in Britain or the United States before 1940 was lucky to make it past 70. Today, however, we assume that our parents and grandparents will live into their eighties or nineties.

Living off income generated by investments is an ideal way to fund your retirement, but low interest rates make that tricky.

However large or small your pension pot, you will need to withdraw enough money from it to cover your living costs without running out of cash before you die. Let’s kick things off by focusing on how to manage one part of your pot – returns on investments.

Some investments produce income automatically. Quarterly dividends generated by a stock market fund, for example, are simply deposited in your personal pension account. The same applies to investment trusts.

Selling assets can make up for shortfalls in your income, but this requires caution.

Imagine a retiree called David with a $300,000 pension pot. He owns his house and needs just $15,000 a year to cover his expenses. To hit his target, his investments must generate an annual natural yield of five percent. The market, however, only gives him 4.24 percent. That’s $12,709, leaving him $2,291 short.

Like many savers, David’s assets don’t generate the income he requires, and he’ll need to sell some of his capital. Isn’t that a slippery slope leading to financial ruin? Not necessarily. The trick is knowing what proportion of your pension you can sell off without running into trouble later on.

Annuities can provide risk-free income in later life.

As you take an income and sell a portion of your capital, your pension pot will shrink. As we saw in the last blink, this process can be managed by selling no more than one percent of your income-generating assets every year. If you knew how long you would live, this method would work perfectly until the end. Longevity, however, is an unknown factor in your calculations.

The older you get, the more likely it is that this system will break down. That’s a scary prospect: every extra year you haven’t planned for is a year without income. This means you need a back-up plan.

Funding your retirement by releasing cash locked up in your home is expensive and risky.

If you own a house, it’s likely your biggest asset. Does that mean you should be using it to fund your retirement? In most cases, the answer is “no.” Let’s see why.

Taking money out of your home is called equity release. As the name suggests, you are freeing up or “releasing” a property’s value or “equity” without selling it outright. Generally, this is something older folks do, and the majority of equity-release mortgages are only available to borrowers aged over 55 or 60.

If you want to leave money to your heirs, you need to consider what will happen to your assets after your death.

It’s an unpleasant subject, but there’s no getting around it – we all need to plan for what will happen to our assets and income after we die. This is vital, because understanding this issue may change how you plan your retirement, especially if you want to deliver better tax outcomes for your heirs.

Annuities and final salary pensions can be inherited and will continue to be paid out to your nominated heirs after your death. Typically, your spouse will receive half or two-thirds of your income, though this depends on the terms you concluded with your provider or employer. In most cases, this arrangement has no immediate tax implications.

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Worum geht es in Your Retirement Salary?

Your Retirement Salary (2019) tackles a knotty question asked by savers approaching retirement age: How do you transform your savings into an income that will see you through your sunset years? Drawing on years of experience addressing readers’ personal finance questions for a leading British newspaper, Richard Dyson and Richard Evans provide a wealth of insights into getting the most out of your pension pot.

Bestes Zitat aus Your Retirement Salary

Annuities provide risk-free income, and they pay out for all of your life, however long that may be. – Tom McPhail, head of retirement policy at Hargreaves Lansdown

—Richard Dyson and Richard Evans

Wer Your Retirement Salary lesen sollte

Retirees or pensioners
Savers with an eye on the future
Finance fanatics

Über den Autor

Richard Dyson is a prize-winning financial journalist and a regular contributor to both specialist and non-specialist titles including the Express, the Mail on Sunday, Investors Chronicle and the Daily Telegraph. Dyson was also the Head of Personal Finance at the Telegraph Media Group.

Richard Evans is one of Britain’s best-known financial commentators, savings experts and investment analysts. His knowledge of the industry is the fruit of years of research and hundreds of one-on-one interviews with the UK’s top fund managers and professional investors.

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