12/07/2021
A definitive guide to Retirement Income Planning
Your guide to retirement income planning
Do you have any idea as to how much your retirement will cost or how you’ll pay for it or how you’re going generate the income you’re going to need?
At Botham Mercantile International, among the myriad of services we have to offer, we focus on helping you to answer and meet these very important questions?
What are your retirement goals?
What exactly is it that you’d like to do when you retire, indulge in a lifelong passion, spend time with your grandchildren or to just go out there and enjoy yourself?
Whatever it is you’d like to do, let’s take a look at the more important issues.
Avoid running out of money:
For most of you, this is the number one priority. The very idea of turning to your children or having to go back to work is quite perturbing and to be avoided at all costs.
Maintain and/or improve your lifestyle:
You’ve worked hard for your retirement funds and want to enjoy yourself. The key to this is investing for growth over time in order to offset the effects of inflation.
Increase your wealth?
Some of you can easily enjoy your retirement without any fear of running out of money, and leave a legacy for your children or grandchildren, but for others, if this is your goal, you need to take a growth oriented stance on your investment choices.
Spend it all?
There’re those of you intend spending it all before you expire but again, it’s risky if you haven’t planned for every eventuality. We’re living longer than expected.
Before focusing on anything else, we need to identify which of the above categories are best suited to you as an individual.
How much is retirement going to cost?
First of all, you need to consider your non-discretionary expenses:
These are expenses that leave you with no choice and maybe a little wriggle room and include day to day living costs like shopping, fuel, gas, electric and heating. If you have no intention of moving elsewhere, you most likely know how much you need.
Next consideration:
Mortgage payments, loans, credit cards etc. all need to be taken into account when determining monthly expenditure.
Let’s not forget taxes:
Your taxes might be less than before but no way to get away from them.
Last but not least, Discretionary spending:
This is spending for your personal satisfaction and enjoyment. Travel, hobbies, luxuries, children & grandchildren etc.
How will you fund your retirement?
Once you’ve worked out how much being retired is going to cost you, how are you going to prepare for or what are you going to do, to meet these expenses?
If you have a company pension, you need to find out exactly how much you stand to receive on a monthly basis and if there’s any possibility that it’ll either increase or decrease?
Depending on your circumstances, a state pension should be available to you when you get to the required age. It’s a good idea to find out how much you’ll be entitled to, as and when you reach the determined age. Statements are available at www.gov.uk/check-state-pension
Business and property. Any income from these should also be taken into consideration.
Is a combination of the above going to be enough or do you need to take action to ensure you have enough income when you do reach retirement age?
Over longer time periods, equities have less volatility and more growth potential than fixed interest. So, if you have a longer investment term, and/or want higher returns, you might want to consider placing the emphasis on buying equities within your Portfolio. This is also vitally important when it comes to withdrawing funds over the course of your
retirement years. Obviously, your equity exposure has to be within your personal risk boundaries.
If for example, you’re withdrawing $50,000 annually from a $1,000,000 Portfolio, then you’re more likely to deplete your Portfolio if your return rates aren’t high enough. You’d need an annual return rate of at least 5% just to break even. If you worry too much about the risk of exposure to equities and better rates of return, consider what happens when your returns aren’t high enough?
Next of course, is the issue of withdrawing too much from your Portfolio, making it impossible to retain its original value. In simple terms, taking annual withdrawals of more than 5% is tantamount to gambling with your future wellbeing.
Investment considerations
Bonds.
Bonds can be issued by governments, Corporates and Municipalities in order to raise capital. Effectively, these are loans from you in exchange for a fixed amount at a pre-determined time. Once these obligations have been met, your capital is returned. On the proviso that the Bond issuer doesn’t default, your returns are fairly predictable as are the low interest rates offered by the more risk adverse Bonds such as GILT’s.
Dividend paying Bonds are attractive but at the end of it all, they are subject to defaulting and dividends aren’t guaranteed. Will the total return compensate for the loss of value on your initial investment due to the eroding effects of inflation?
Equities.
Buying and selling selective equities in exchange for cash flow can help maintain a well-diversified Portfolio appropriate for your needs. This also provides flexibility and potential tax efficiency. Also, you can sell down equities to offset any gains taxes.
Generally, the sale of equities provides you with more opportunities, if handled wisely, especially if you hold dividend paying equities which add to your cash flow.
Real Estate Investment Trusts ( R.E.I.T.s )
REIT’s invest in real estate properties. In general they purchase office buildings, retail space, flat’s, assisted living or medical facilities, hotels & holiday resorts.
Revenue is then generated from lease or rental income. REIT’s are required to pay 90% of their annual profit via dividends, to their shareholders.
However, any company giving away 90% of its profits would be severely hampered when trying to expand and consequently this industry comprises of generally smaller companies with limited growth potential.
How can we, Botham Mercantile International, help you?
Planning
We’re in a position to create an asset allocation strategy that meets your time horizon, cash flow requirements and objectives while at the same taking your risk appetite, or lack of, into consideration. Where deemed suitable, we may recommend employing the services of a Discretionary Fund Manager, in order to enhance returns on your behalf.
Portfolio Management
The investment process is managed by us but based on your personal risk profile and using our combined industry experience. Our dedicated fund management team cuts through most of the marketplace chaffe, and is there to guide you, based on your personal strategy and following a strict and disciplined philosophy.
Investment guidance
We offer a level of service we believe is rarely seen when it comes to money management. Our objective is to help you reach your goals and to keep you educated , up to date and comfortable with our management of your money, and to ensure that you understand your chosen strategy, and that you stick with it.
Investing is emotional and our remit is to keep you disciplined at all times, no matter what the prevailing market conditions, which is why you have direct access to your personal adviser, whose duties are to help you understand what’s going on in your account and why, to regularly review your investment goals and handle any queries from you, quickly and efficiently.
If your current Portfolio is valued in excess of $250,000, we can help add value by working with our affiliated, Swiss based, fund management team.
For more information and/or a non-obligatory e-meeting with one of our CII accredited advisors, please feel free to contact us at: [email protected]
Suite 3, 1st Floor, La Ciotat Building, Mont Fleuri, Mahe, Seychelles
Company registration number 219969
www.bothammercantileinternational.com
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