Oh, how things have changed in a generation.
When my mum and dad started out, they had an expectation of working for the same employer for most of their lives, building their financial planning around that employer, and working in the same office all day.
Now it's so different.
A pension was something your employer-provided together with other benefits, like life assurance and private health insurance. Many still do this but chances are you will switch around jobs loads of times, work remotely, try your own thing, take career breaks, work internationally, and so the pattern behind these benefits may not mean as much as it once did.
There are also the uncertainties created by a health crisis such as Covid-19 and the likely impact on your financial situation. Yes, now it’s so different therefore it’s increasingly important to self-fund where you can.
Here are a few of the most important things to consider:
There are no hard and fast rules about how much cash you should keep — it comes down to the individual — think about it yourself and do some analysis. If I change jobs, take a break, set up as an entrepreneur, or even get sick, etc. How much cash do I need to tide myself over? The answer is probably somewhere between 3 and 12 months of normal expenditure but as I say it comes down to you and your unique circumstances. Work out your cash flow situation. What do you have to pay over the course of a typical financial year, and what can you stop paying if you need to?
For example, the UK like many countries incentivizes saving mainly through the pension system where you can get tax relief up to 45% on savings up to £40,000 p/a and individual savings accounts where although you don’t get tax relief up front, once invested amounts grow tax-free. The US provides tax incentives for long-term savings through Individual Retirement Accounts and 401k.
You may have a variety of different roles over several years, all with their own pension plans into which your employer pays. As a result, you could end up with multiple pots which you can look to consolidate into one self-invested pension plan (SIPP) later on, to ease your personal admin and to ensure a coordinated investment strategy.
As with any investment arrangement there are potential risks associated and therefore it is always best to contact a professional adviser prior to making any changes to your pension. There may also be additional costs incurred as a result of a transfer, which you need to be aware of.
This is your base currency to measure your net worth and drive your planning and investment strategies. You don’t have to set this for life, you can always change it later if your circumstances change. The key is to have a view and a plan today.
For example, if you expect to work in the UK for your whole life but plan to retire to sunny Florida, you will use GBP as your base currency and also think about holding USD assets long before you retire.
If you are going to work in one of those countries say China, which doesn’t facilitate UK pension transfers, then it may not make too much sense to put all your savings into a UK pension; an offshore investment account with Rosecut may be more flexible.
Do they reflect your current wishes? What about assets you hold in different countries? You may need a separate will to deal with these.
Also remember that some tax favoured investments carry access restrictions so they’re OK for later life planning but won’t help if you want to take a sabbatical when you’re say 40 years old. In the UK for example, ISAs can be broken at any point whereas a SIPP cannot be accessed until you are 55.
It is also increasingly important to provide your own life and health insurance as regular switching of jobs means that you’re not likely to be covered by any one employer scheme for that long. If you fall out of an employer life assurance scheme and become ill soon after you may find it impossible to get cover.
Employers typically provide four times your salary as life insurance, although some may provide more. Check that any life or health insurance policy you take out is portable if for instance you decide to move from the UK to New York for six months and then spend a year in Asia.
Rosecut can help you with all the above either directly or through our comprehensive professional network so please do contact us at firstname.lastname@example.org for more information and support.
Please note: Past Performance is not a reliable indicator of future returns. When investing, the value of your investment may rise or fall and there are no guarantees you will get back all the capital you have invested.