Planning for retirement in volatile times

Retirement planning has continued to develop over the years, but the pace of change has increased in the last decade. As tempting as it may seem to look at previous generations and compare the effectiveness of their financial planning to today’s strategies, such strategies have needed to adapt  to the challenges and opportunities in the financial planning landscape as it continues to evolve.

As volatility across the world continues to increase, the ways of managing wealth continue to evolve. In this article, we’ll look at some of the challenges of the past few years and the solutions that the financial planning industry has created to these problems.

Freedom of choice can be overwhelming

The use of technology in financial planning has introduced layers into the process, which has made it simpler and more sophisticated at the same time. Some of the tools we use to derive the most suitable plans for our clients at 7IM are based on extensive data to calculate the likelihood of a financial plan’s long-term success.

Today we utilise a combination of cashflow modelling, tax optimisations strategies and the 7IM Retirement Income Service (RIS) to build a retirement plan that has the ability to adapt to changing client needs, the investment markets and changes to tax legislation.

7IM’s Retirement Income Service   (RIS) aims specifically at doing that. Working alongside cashflow modelling tools, RIS is designed to help individuals meet their income objectives for today and in the future while keeping them within their agreed risk profile, whilst reducing the risk associated with drawing from the portfolio in periods of market decline. It accomplishes this by splitting assets into cash, short, medium, and long-term investment pots using all available tax wrappers.

The 7IM RIS aims to enhance the outcome of cash flow models by running thousands of simulations based on historical 7IM client information and investment data, to both understand and reduce the risk of the potentially damaging effects of running out of money in retirement.

Many of the conversations we have with clients are centred on the question of whether they can meet their financial goals during retirement, or if their income will last the distance (especially as the time the clients remain fit and healthy continues to increase).

When used well, technology can open the doors to more and better financial solutions that should shed light on an individual’s ability to reach their goals with a solid degree of confidence – something to celebrate and leverage.

Investing for the long term

The past decade has exacerbated the need to plan for uncertain times. The modern-day investor must think carefully about resilience in the face of volatility; how do we build a portfolio with the ability to grow and withstand market shocks?

Events like Covid-19, the Russia-Ukraine conflict and, more recently, the tariffs imposed by US President Trump offered such tests.

At 7IM, we believe in portfolios that are properly diversified, with a blend of safe assets that ensure stability in more volatile times, and other diversifiers that focus on short and long-term growth.

Our analysis demonstrates  that most investors who stayed  committed to investing in the long term (through good and bad times) outgrew those who withdrew during the bad times. Portfolio recovery is an essential part of its growth, and something the long-term committed investor can benefit from.

Chasing tax efficiencies

Government policy also affects the way individuals are saving for retirement. Under the current Labour government, the 2024 Autumn Budget reflected a focus on boosting revenues by increasing the level of taxation on those with the broadest shoulders.

For instance, one of the main reasons why individuals have recently been revisiting their financial and retirement plans this year is the inclusion of their pension into the value of their estate as proposed by the government.

Under new rules planned to take effect from April 2027, the value of pensions may also form part of a person’s inheritance tax calculations, which could incur steep rises in inheritance tax liabilities for many families.

But there are ways of mitigating the impact of the inclusion of pensions into the IHT net. As mentioned, a resourceful financial adviser should be able to leverage best-in-class instruments and strategies to ensure an optimal distribution of assets with a view to maximise returns and optimise tax efficiencies.

Using professional cashflow modelling, tax optimisation and 7IM RIS is how we manage this for our clients at 7IM. With access to the most competitive products and services in the market, we produce holistic financial plans for our clients that encompass all aspects relating to their wealth. By doing this, we help them get closer to the retirement of their dreams – whatever phase of their life they’re in – and, if desired, leaving wealth to future generations in the most tax-efficient ways.

If you’d like to discuss how you could improve any aspect of your finances, talk to us.