Later-life financial planning is complex, but the pandemic has forced many people to reassess their finances, raid their pension pots and bring forward or change their retirement plans. Richard Cooper looks at the additional impact of life in lockdown and how financial advisers and planners can update skills to offer clients the best advice.
There are many reasons why later-life financial planning has changed in recent decades.
Fewer people have access to defined benefit schemes and more rely on several sources of income after retirement. Incomes from pension annuities continue to fall and life expectancy continues to rise, creating a need to plan and budget for long-term care.
And all that was before the Covid-19 pandemic, furlough, volatility in the markets and economic shock.
According to research in January this year, the pandemic has forced more than 154,000 people aged 55 to 64 into early retirement. A further 211,000 report accessing pensions savings to supplement their income due to losing their job or some income.
Those figures, from LV=, follow on from a survey in September 2020 of 50-70 year olds from the Money & Pensions Service. Over a third reported that Covid had impacted their finances, with 18% saying they’d decided to delay accessing their pension.
A significant number however, 14%, were accessing it sooner – 10% to supplement their income and 4% to support a family member or friend.
Retirement planning and financial goals
Life in lockdown has prompted some people to adjust their priorities, for example, move nearer to family take staggered retirement or retire earlier.
Your clients may plan to travel when they retire, or devote more time to interests, hobbies and unfulfilled creative ambitions which require a decent income. However, after an active period in early retirement, people tend to become less active and their costs usually fall during the passive retirement phase.
Lockdown has been a great opportunity for clients to experience what a passive retirement looks like. Many have been surprised how much money they have left each month.
Later-life planning and financial advisers
All of this has perhaps made retirement planning conversations easier and more realistic. But the solutions are more complex and certainly it’s no longer a case of one size fits all.
Traditionally a client’s relationship with a financial adviser ended at retirement, when a client had achieved all or some of their objectives and taken out an annuity.
Now the opposite happens. Increasingly clients continue to see financial planners throughout their retirement years and rely on drawdown solutions and income from various assets.
Cashflow modelling has become very important. Clients want to see graphics and visualisations to:
- help them set goals and aspirations for their retirement years
- ensure they have enough cash for key events on their bucket list, and
- to be confident they will have enough income to meet their requirements.
Clients also need help with the order in which they take cash or how they tax efficient income from their various assets.
That’s why many advisers are now positioning themselves as retirement or financial coaches.
Skills for advising on retirement and pensions
It’s important to have the right level of knowledge and skills to advise in this evolving market.
Later-life planning has become so complex, you need to be able to take a holistic approach – using cashflow modelling and encompassing all your clients’ potential revenue streams and assets.
To do that well, you need to able to ask difficult questions, for example about long-term care and funeral planning.
Because Covid hasn’t just changed the way people retire, or the way they’re planning for later life. It’s also changing the way financial advisers are having to advise.
Find out more about Level 6 Financial Planning in Retirement (FPIR)