Author Archives: Alex Herbert

Millennials face dire retirement odds

Those born between the 80s and the new millenium may have enjoyed the birth of the internet, and can thank wikipedia for helping with their homework, but they are facing a somewhat sinister future in terms of retirement.

If we have been facing a bit of economic turmoil over the past years, perhaps those who suffer these costs the more are the Millennials. Indeed, members of the so-called generation Y (born between the early 80’s and the early 2000’s) not only had to grow up through the fashion disaster that were the 90’s, but are now facing dire odds when it comes to their own retirement. Let us look at the various reasons behind the issues faced by the Millennials.

Not everything can be blamed on the economic crisis everyone suffered through. One of the key issue with Generation Y ers is that they do not start saving early enough, and simply putting a little away at the end of the month can save you a tremendous amount of trouble later. Andy Kiersz, of the Business Insider, sums it up this way: if you want $1 milion at age 65 and you assume a 6% annual return, you only need to save $360 a month if you start saving when you’re 20, as opposed to $700 is you start at age 30.

Not only aren’t the Millennials saving enough, but most of them are also severely in debt. The key issue for this are student-loan. With the all time high costs of US higher education, and the rising costs of higher education in other countries, many are burdened with student loans that prevent them from acquiring assets in their professional lives. Paying back their student loans over the first decade of their professional lives prevents them from purchasing a house or making appropriate investment, and also costs them years of saving for retirement.

Generation Y is also thought to have poor financial literacy – according to various surveys and studies. If it is not necessarily true that they are more ill-equiped than their parents to make informed financial-related decisions, it is certain that they have to make more of those decisions on a daily basis, especially in the work place.

Additionally, pensions and social security are no longer regarded as valid ways to plan one’s retirement. Their parents benefited from pensions, so it is often perceived today as the basis for retirement, but most employee today is unlikely to benefit from a pension, except if they work for the government.

The Millenials also have to deal with income inequality once they leave college and begin their professional lives. If there are high paying jobs out there for the Millenials, the demand is often found in particular sectors (today, think programming or graphic design). Those with the skills in high demand are likely to find a well-paid, stable job, but those who follow jobs that are still vital to the economy but are not as ‘hot’ today will struggle to save for their retirement.

If these odds seem somewhat pessimistic for the members of Generation Y, one must remember that the economy is recovering, and that they may very well benefit from this recovery too.

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Dreaming of the good life?

What preparations are you making today? Alex Herbert, Regional Managing Partner for Prestige Wealth Solutions, takes a closer look at your retirement fund options.

Everyone dreams of a blissful post-work life; a retirement full of glorious time spent dining and travelling and doing all the things you now only fantasise about during lulls in long days at the office. But the retirement of your dreams requires more than free time and good health – you’ll also need a satisfactory income. Most likely, a state pension – if you’re lucky enough to qualify for one – won’t be enough to meet your needs. With this in mind, you may want to spend a little of your time examining your pension planning options now.

The first thing you should do is estimate how much money you think you will need to live on when you retire. Remember some expenses will disappear, such as the cost of commuting to and from work, but it is likely you also have a list of things you’d like to see and do – many of which will require money.

Of course, perhaps you feel you’re much too young to start paying into a pension fund. Rest assured you’re not: the sooner you find a pension plan that suits and start putting money into it, the longer your money has the potential to increase. Consider John Smith, age 40. Based on a particular pension plan, if John is to get a pension of £10,000 at age 68 he will have to put aside £290 a month starting today. If he’d begun saving for his pension 10 years ago, at age 30, his monthly contribution would have been just £149. On the other hand, if he delays paying into the fund for another 10 years, until he is 50, his monthly contribution will have to be £661 for him to still receive £10,000 when he turns 68.

But just making a monthly payment into a pension plan and forgetting about it isn’t enough. You need to safeguard that fund by monitoring it closely and regularly reviewing your retirement provision. This can be done with your Financial Adviser – please email me if you would like help (a.herbert@pws-intl.com). Don’t hesitate to ask for statements from current and previous pension providers to see how much you can expect to receive. If you have a UK pension, consider the tax implications and whether you would benefit from transferring offshore. This can be done through a QROPS arrangement, but professional help should be sought – visit www.pws-intl.com for further details.

As retirement nears consider the type of investments your fund is in; do you need to insulate yourself from market shocks by moving your fund from high-risk shares to much lower-risk fixed-interest bonds, for example?

You may, as you monitor your pension fund, see a gap emerging between what you’ve estimated you’ll need to enjoy your retirement and what your pensions are likely to provide. If you’re unwilling to downsize your retirement lifestyle, then increase your savings now. Save as much as possible while you’re still working – especially while living and earning tax-free income offshore.

As much as you may yearn for your retirement, remember that the longer you put off claiming your pension, the more time it has to grow. Retiring at 55 may be tempting, but holding off until you’re in your sixties may mean you can afford a better post-work standard of living. Also, when deciding to claim your state pension, consider that some state pension plans offer benefits (such as an increased growth rate) to individuals who delay making a claim. Check what your state offers.

Remember also that many pension plans give you the option of cashing in early – usually at a reduced percentage of the fund’s value – so the money you pay in isn’t necessary under lock and key until you reach retirement age.

Finally, if you’re working abroad, explore offshore savings plans through life assurance companies as well as the QROPS (Qualifying Recognised Overseas Pension Scheme) plans already mentioned.

To see which options might benefit you, or to discuss anything in this article, please contact Alex Herbert directly via email (a.herbert@pws-intl.com) or visit our website, www.pws-intl.com today.