For those who feel that they can plan their retirement without advice it may be worth stopping and reading this blog. With all my blogs I put a proviso on them, for some who plan without advice they already know this but for others just going ahead without advice, investing needs some planning.

I recently read the HSBC Report ‘Life After Work’, one statistic is a sobering thought – 12% of working people expect never to be able to afford to fully retire. I suspect over the next few years this will increase considerably.

The report provides four practical steps towards a better retirement.

  1. Don’t rush into retirement
  2. Don’t rely on one source of retirement income
  3. Be realistic about your retirement outgoings
  4. Plan your retirement with family in mind

In this blog I want to focus on action point 2, and touch briefly on action point 3. I have mentioned previously a spreadsheet I have developed which looks at your budget now and your budget in retirement. The budget in retirement is then projected forward to give the value when you wish to retire. When you set up your investments there is no point saving £50 per month if this is not going to touch what you need so this has to be the first step.

Action point 2 to me is the most important. I recently read the Barclays Gilt Edged Study and this stated that “cash is likely to remain a value destroyer, in real terms” and this to me emphasises the need to take care when considering the source of retirement income. Even with a cash ISA paying 2% tax free this is being destroyed by inflation. So the first question has to be what you use to deliver what you need for retirement.

Traditionally we have turned to pensions, and I suspect a lot of people saving for retirement still use these as the main source for income but although there is tax relief on the way in there is tax on the way out as well as a restriction on what you can do with the money. ISAs on the other hand don’t offer tax relief on the way in but more flexible tax-free income on the way out. Equally non-ISAable assets can be tax-free using CGT allowances.

Male age 40, retiring at 67.

New state pension of £7,800 p.a. (assuming no increases to age 67).

Pension Fund £50,000, Stocks and Shares ISA £50,000.

Currently Paying £3,000 p.a. Gross to a pension and £3,000 p.a. to an ISA.

Target income £2,000 – with inflation this would be £4,215.45 at 67.

Breakdown of income assuming 5% payable from pension and ISA:

Income source

Monthly Income

State Pension

£650.00 p.m.


£1,461.17 p.m.


£1,461.17 p.m.

Less tax

-£247.24 p.m.

Net income




If we assume the client is a basic rate tax payer and the tax relief is added to the ISA so the client pays an extra £600 p.a. to the ISA this increases the net income by nearly 5% to £3,461.77. Interestingly if the client stops paying to the pension and pays all the money to the ISA i.e. £6,000 to the ISA the result is a net income of £3,461.77.

This is based on 5% p.a. net return after charges, fees etc.

Recently I saw an article encouraging people to ditch their pension and save into a cash ISA. Assuming a cash ISA returns around 2% a year gross and assuming £3000 to both the pension and cash ISA this would deliver an income of just £2,661.34. More importantly over a five year period in retirement the value of the investments would fall by around 5%.

If a client ditched pensions savings and paid into a cash ISA then the income would fall again to around £2,556.48 but worse the investments in retirement would fall by nearly 10% in a five year period in retirement.


The point of all of this is that planning for retirement is not that easy, firstly you need to consider what you need in retirement and you need to be realistic. In this example I have assumed a single person, adding in a second person changes the figures. Some people may have a final salary scheme which changes the figures. So when planning how to deliver the income needed you need to consider all sources whether this is the state pension, an ISA, a pension or other sources. Then you need to consider the most tax efficient way to receive the income.

And finally don’t just sit back, constantly review and monitor.

I haven’t talked about how to invest the money that is for another day. But if you are comfortable with making a plan, and the investment aspect, then of course go direct. If you are not then this explains why you would approach a financial planner and why their fees in many cases are worth paying.

NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.