Saira’s retirement case study
Saira’s 55 and starting to think about her retirement. See how she managed the assets she’d accumulated over her working life and find out how it served her throughout retirement.
The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. The past performance of investments is not a reliable indicator of their future performance.
Profile
Saira is a 55-year old widow who is starting to think about her retirement.
I am looking forward to my retirement as it means that I will be able to meet with my friends and family more regularly and spend more time with my daughter who is expecting her first child.
Saira worked in Human Resources for a global accountancy firm for more than 30 years. During this time, she worked in offices around the world, including the UK, Europe and Australia.
I love working in Human Resources as I get to meet lots of interesting people and see how they develop in their roles as they progress through their careers.
Financial assets
Saira’s husband Michael passed away five years ago.
Michael worked for 32 years as a builder, and regularly contributed to a number of life policies throughout his working life. These policies have provided me with a valuable cash lump sum in addition to my existing savings and investments.
Figure 1: Asset breakdown (on day 1)
Saira’s Goals for Retirement?
Saira plans to take a break from work and travel for a year.
I would like to stop work now, go travelling for 12 months as a sabbatical, and then return to work part-time. Working part-time will also allow me to spend more time with my family and my first grandchild.
What was the outcome for Saira?
Saira returned after her sabbatical. At the same time, she accessed her retirement savings from age 55, as her annual expenditure exceeded her annual income. At her current level of spending, her retirement savings would last for approximately 30 years which is just shy of the average life expectancy of a woman her age today (86 years, according to the Office for National Statistics). If Saira lived past 85, she would run out of savings and be unable to fund her lifestyle.
Having taken a year out to travel around the world, I realised that I missed work more than I thought I would. I am keen to go back part-time and that way I can also spend time with my granddaughter.
Figure 2a: The annual surplus/shortfall over time based on Saira’s annual income and expenditure
Source: Barclays.
Figure 2b: The remaining value of Saira’s retirement savings over time
Source: Barclays.
This scenario is based on an assumed rate of return of 2.5% per annum. The actual rate of return could be higher or lower, which would result in different outcomes.
The annual income is made up of employment income, dividend income, pension, and state pension. The state pension amount is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting GOV.UK View - Check your State Pension.
The annual expenditure is made up of essential, supplementary, and luxury expenditure.
For a breakdown of the annual income, annual expenditure, and the annual income surplus/shortfall, refer to the Appendix.
Did Saira have any other options to consider for her retirement?
Saira has a few ways to make her retirement savings last longer other than increasing her income by returning to work. She can grow her capital or reducing her spending. To achieve this, she has a number of options that she should consider given the circumstances.
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Although the family home holds many very special memories for me, it feels like perhaps the time is right to think about selling up and moving to something smaller. I don’t need four bedrooms and perhaps a bungalow makes more sense at this time in my life.
If this does not appeal to her, Saira could always consider an equity release on her existing home, or even renting out her home.
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Saira could reduce her travel time and costs, and also her supplemental spending.
I know I can be more careful with money. I often take a taxi when I could just as easily take the bus. And, I don’t need to spend £3 a day on a coffee every morning – it all adds up.
The following table shows the assumptions we have used in our calculations.
Figure 3: Growth rate assumptions Growth Rate Assumptions (%pa) Nominal Real (Implied) Inflation 2.5% – Income growth 2.5% 0.0% Expenses growth 2.5% 0.0% Asset growth1 2.5% 0.0%
Important considerations
This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances.
Money paid into a pension cannot be withdrawn until you're aged at least 55 (this is rising to 57 on 6 April 2028). Bear in mind this may increase further in the future.
This scenario is based on an assumed rate of return of 2.5% per annum. The actual rate of return could be higher or lower, which would result in different outcomes.
All investments can fall as well as rise in value and you can lose some or all of your money.
This communication does not constitute an investment recommendation or tax advice.
We don't offer personal financial or tax advice, so if you're not sure about investing, seek independent advice.
If you live in Scotland or Wales you may have a different income tax rate or band.
Appendix
| Term (Yrs) | Period | Client age | Description | Employment | Dividend | Pension | State | Total (Gross) | Total (Net) | Tax rate2 |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Year 1 | 56 | Travelling | £ Nil | £5,000 pa | £ Nil | £ Nil | £5,000 pa | £5,000 pa | 0.0% |
| 10 | Years 2-11 | 57-66 | Part-time work | £22,500 pa | £5,000 pa | £ Nil | £ Nil | £27,500 pa | £24,500 pa | 10.9% |
| 34 | Years 12-45 | 67-100 | Retired fully | £ Nil | £5,000 pa | £ Nil | £9,000 pa | £14,000 pa | £13,250 pa | 5.4% |
| Term (Yrs) | Period | Client age | Description | Essential | Supplementary | Luxury | Total |
|---|---|---|---|---|---|---|---|
| 1 | Year 1 | 56 | Travelling | £10,000 pa | £ Nil | £25,000 pa | £35,000 pa |
| 10 | Years 2-11 | 57-66 | Part-time work | £15,000 pa | £20,000 pa | £ Nil | £35,000 pa |
| 34 | Years 12-45 | 67-100 | Retired fully | £15,000 pa | £10,000 pa | £ Nil | £25,000 pa |
| Term (Yrs) | Period | Client age | Description | Income (Net) | Expenditure | Annual surplus / shortfall | Discrete (Term) | Cumulative |
|---|---|---|---|---|---|---|---|---|
| 1 | Year 1 | 56 | Travelling | £5,000 pa | £35,000 pa | -£30,000 pa (for 1 year) | -£30,000 | -£30,000 |
| 10 | Years 2-11 | 57-66 | Part-time work | £24,500 pa | £35,000 pa | -£10,500 pa (for 10 years) | -£105,000 | -£135,000 |
| 20 | Years 12-31 | 67-86 | Retired fully3 | £13,250 pa | £25,000 pa | -£11,750 pa (for 20 years) | -£235,000 | -£370,000 |
| 14 | Years 32-45 | 87-100 | Retired fully | £13,250 pa | £25,000 pa | -£11,750 pa (for 14 years) | -£164,500 | -£534,500 |
Source: Barclays