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Should my husband and I focus on getting our cash savings into pensions or drip feed them into ISAs? We would like to retire in 2 years time.

06 October 2021

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Question by Olive

Hello there, we (married couple) are 54, and have 272k (me) and 166k (him) in various DC pension pots. We also have 40k each in S&S ISAs and 360k in cash savings, premium bonds etc.

Should we get focus on getting those cash savings into pensions (using carry forward) or drip feed into ISAs? Our (full) state pensions are 13 years off.

We would like to retire in 2 years time with a joint income of c30k+.

Thank you.


Answered by Noel Watson

Hi Olive,

Thank you for submitting your question. Without having some more information it’s tricky to answer in detail but I hope the below information helps you on your retirement planning journey.

Given your age when you plan to finish work, it could be that your retirement lasts for forty years or more, so it’s important you are happy that you have a robust retirement plan in place before your employment income ceases.

It might be worth spending some more time thinking about the cost of your desired retirement lifestyle. For example, does your £30k+ expenditure cover both early and late retirement or might you spend less later in life? Do you have plans for gifting, one-off expenses (round the world trip?) and later life care?

Once you are happy with this, the next step is to build a retirement plan to determine how you are going to fund this expenditure given your assets and future state pension income. The most important question to answer here is “Have we got enough?” – the last thing you want to do is worry about running out of money in later life. It may be that your plan shows your money outlasting you, in which case you might consider going back to your expenditure plans and seeing if there is anything that you might want to add.

Conversely, the plan might show you running out of money, in which cases compromises may have to be made. This exercise is typically an iterative process until you settle on a plan you are happy with. While building the plan, you can evaluate the impact of putting some of your cash savings into pensions and ISAs on plan success, and also ensure lifetime taxation is optimised. It’s also worth considering less positive scenarios; for example, if one of you died soon after retirement would the surviving partner have a sufficient income for the rest of their life?

The third part of the exercise is to build an “investment engine” to deliver the returns required to ensure the retirement plan is a success. In simple terms, you will need to create a portfolio that has an acceptable trade-off between short term market volatility (how much your investment portfolio balance falls during turbulent markets) and the longer-term returns necessary to deliver your desired income.

Finally, it’s worth stress testing your plan to ensure both you and your portfolio can cope with turbulent markets. For example, if we have a rerun of the 1970 with both falling investment markets and high inflation would your retirement plan be put under strain, and might you need to make spending adjustments? Could you cope with seeing your portfolio valuation continue to fall for long periods of time?

There are many things to consider when planning for retirement, and I hope you found this overview useful. If you want to drill into more detail on any of the above it might be worth having a look at my book (“Planning for retirement: Your guide to financial freedom”) which covers the above in more detail and the accompanying website has various tools and spreadsheets to help with your retirements planning. It also gives you some pointers on finding a retirement planning specialist should you want some help with this.

Please feel free to get in touch if you have any questions on the above.

Noel

This answer is for informational purposes only and should not be relied upon for advice.

Answered by

Noel Watson

Independent Financial Adviser

I’m an Independent Financial Adviser specialising in retirement planning. Before becoming an adviser, I spent 15 years working at various investment banks in the City of London and during this time struggled to find a financial adviser that would help me and my family plan for the future.