What will I need to retire?

The golden question when it comes to retirement planning is determining how much you will need to accumulate to successfully stop working, while maintaining your lifestyle.

Although it is beneficial to simply save as and when you can; obtaining a specific goal can provide much needed focus, and urgency, to prevent you from putting it off for that extra year.

A quick internet search will produce many basic calculators and statistics to give you a broad average of household expenses, and the lump sums required to meet these needs. The Office of National Statistics indicated a gross income of retired households as £29,000 in 2016, and Which? Has estimated an income of £26,000 being required to retire comfortably.   In our experience these generic figures are not overly helpful for our clients, as everyone has a unique set of circumstances and needs.

Although it is impossible to predict the future, and with it your precise needs at retirement, a good start is to look at your lifestyle today, and the known factors that will influence your future spending.

Begin by looking at your regular expenditure.  A good way of doing this is looking at your bank and credit statements for the last three or so months.

When looking at this, try to break down your spending into different categories of importance. An example of the categories is below:

Category Summary Examples
Essential You cannot live without these Mortgage, Bills, Groceries, Transport, Looking After Dependants
Basic It is not worth living without these Socialising, Hobbies and Interests
Luxury Enjoyable, but unnecessary to live Home Improvements, Holidays,

Higher End Restaurants, Trips

Aspirational Very enjoyable, but wholly unnecessary Yachts, Fine Wine Collections,

Multiple Homes, Vintage Cars


Naturally these examples will vary from person to person, and within each category there will be an order of importance, but by looking at your current habits, and splitting them up in this manner, you can get a basic idea for the bare minimum you will need upon leaving employment, as well as what would be required to lead the life you wish to lead.

My reference to ‘known factors’ above will include situations such as the mortgage being paid off in ten years, or that you will stop commuting at retirement.  There are also some less tangible factors, which are important, but harder to estimate- for example you will have more spare time at retirement, which may increase your socialising and holidays.  Use these factors to help refine the predicted amount of income required.

After this exercise you should have a general indication of what is required to meet each ‘category’, in today’s terms. For example your essentials may be £12,000 per annum, to meet your basic costs increases this to £22,000, to meet your luxury costs would raise this to £36,000, and to buy, insure, and maintain the yacht you have always dreamed of would increase this to £150,000 per annum.

This is a time to stop and reflect. Do the figures you arrive at surprise you? Was it a particularly expensive or inexpensive three months? Were there particular one-off purchases you do not expect to happen again? By thinking hard and being honest with yourself you should hopefully have arrived at a minimum and aspirational income figure for retirement.

An often quoted figure when estimating the capital required for income is to multiply it by 25.  This assumes that taking 4% from investments is sustainable over the longer term, net of costs.  While not a perfect calculation, it can be useful to obtain a general figure required.  Taking the examples above, you would have the following:

Category Income Required Capital Required
Essential £12,000 £300,000
Basic £22,000 £550,000
Luxury £36,000 £900,000
Aspirational £150,000 £3,750,000


Armed with these figures, you now have a goal to aim for when saving; however there are some pretty big caveats:

  1. These numbers are in today’s terms, if you were to retire immediately, and over time inflation will increase the costs for your needs. If, for example, inflation averaged at 3%, in five years the £900,000 requirement would be £1,043,347.
  2. This is an estimate only, and based upon your current lifestyle. Should you require nursing care, for example, your lifestyle costs may increase significantly.

The next step is to assess the feasibility of meeting this income, and take measures to get you on the right track to achieving it.  As a part of our Wealth Management service, we look at your circumstances and timescale, and identify the opportunities available to accumulate and manage wealth effectively.  These areas may include:

  • Maximising pension contributions, and utilising allowances, to increase your retirement savings, and increase the tax efficiency of your arrangements;
  • Providing recommendations for your existing investments, and providing ongoing management to ensure they continue to suit your objectives;
  • Carrying out cash flow modelling exercises, to not only refine the estimated requirements, but also to test multiple scenarios, such as different ages of retirement, or needing nursing care.

Working together with you we will help you to develop and achieve your aims for retirement.  We will review your arrangements regularly to ensure you remain in the most suitable position, and make you aware of the opportunities available to boost your chances of living the life that you want.



Stocks in Focus: Diageo

This week I am looking at Diageo plc, one of the world’s largest beverage groups. The business, which is known for its stable of recognisable brands such as Johnny Walker, Guinness and Smirnoff, has recently announced its interim results for the period ending 31 December 2017.

Overall, the results were encouraging. The company’s year-on-year increase in sales was above analysts’ growth expectations, pre-tax profits rose by 6% and earnings per share grew 9.4% compared to the previous year. Management has raised the interim dividend by 5% and stated that they expect further margin growth and improvements in net sales over the next 18 months. They also highlighted that the recent strengthening of the pound against the dollar would hit full-year sales and operating profits as the US is Diageo’s largest market and contributes nearly 45% of its profits. However, management also added that the Trump administration’s recent tax cuts would offset some of the negative currency impact.

CEO Ivan Menezes launched a cost-saving programme a couple of years ago and the recent interim results show that the project has been diligently executed. The underlying business is delivering well against expectations and is on track to meet its 2019 target to become more efficient, leaner, and more agile. Looking at Diageo’s market segments, a growing middle class in emerging markets is playing into the group’s hands too. As consumers move up the value chain, the advantage of Diageo’s big portfolio of brands is that it can provide premium labels to meet every taste. Furthermore, cash flow remains robust and the recent dividend increase continues an enviable record of dividend growth that stretches back to the 1990s.


Stocks in Focus: Rolls-Royce

This week I am looking at Rolls-Royce, the British engineering giant, which announced restructuring plans last week that included the possibility of selling its commercial marine business. The news was welcomed by investors as the marine division has struggled in recent years, reporting losses of £27m on sales of £1.1bn in 2016, despite having cut its staff by 30% and significantly reducing its number of sites in response to the downturn in oil and gas markets.

The review of the division comes as part of Chief Executive Warren East’s drive to simplify the business by consolidating the company’s current five divisions into three core operating units based around Civil Aerospace, Defence and Power Systems.  The overhaul will also see the winding up of the company’s nuclear division, with the nuclear submarine operations being moved to the defence business, and civil nuclear operations becoming part of the group’s power systems business.

The restructuring is the second for the company since Mr East became CEO in 2015. Soon after taking control of the business he introduced a new senior management structure, with the intention of cutting the company’s cost base and simplifying decision making – a move that proved to be successful. The company targeted £200m a year in cost savings in 2015 and are expected to achieve this.

Although the market has initially reacted positively to the news of the restructuring and the potential sale of the marine business, a decision on whether to sell all or part of the division is not expected to be made until later this year. Further details of the restructuring plans will be provided in the company’s full-year results in February.


Stocks in Focus: GKN

This week I am looking at GKN, the British automotive and aerospace components company, which last week rebuffed a takeover approach from Melrose plc – a firm that specialises in buying and turning around manufacturing companies. The informal bid from Melrose was a £7billion cash and share offer (equivalent to 405p per share at the time it was announced) along with proposals for improving GKN’s performance. The board of GKN has turned down the unsolicited offer stating that the approach was opportunistic and that it undervalued the company.

The approach from Melrose comes at a particularly difficult time for GKN. The group has issued two profit warnings since October 2017 and the incoming chief executive Kevin Cummings stepped down at the same time with the company warning about problems at its US aerospace division which he headed up. Melrose intends to formally pursue its takeover proposal and it will present GKN shareholders with an argument that the company is “an overly complex and under-managed organisation”.

In contrast, whilst the outlook is cautious and performance has been muted in the short term, GKN stated that it is trading in line with expectations. The company remains a well-diversified, high quality engineering company that is a prime supplier to the world’s biggest aerospace companies and provides parts and systems to a number of car manufacturers.

A key consideration for long term holders of a company in a prospective takeover is whether the offer price represents good long-term value and whether higher bids might be forthcoming. Melrose has until February 9 to make a firm offer and investors expect further talks and possibly a higher offer.  In the meantime, there are rumours that US buyout company Carlyle Group is also interested in GKN.


Points of View: Market Outlook

Looking forward, the global economy looks set to continue to grow at 3% per annum, but will this growth continue to reward equity investors over the long term?

Our view is that equities will continue to deliver the best long term returns compared to the alternatives of cash and fixed income. There are two main reasons for this. First, starting dividend yields are very attractive on a relative basis. The FTSE All Share, for example, yields approximately 3.6%. In contrast, cash savings rates and gilt yields remain remarkably low. Second, equity dividends should continue to grow from this attractive starting point thanks to underlying economic growth. Whilst there will at some point be another recession or crisis, growth over the long term is remarkably robust.

Having said this, we apply two important caveats. First, we expect equity returns to moderate. Global equities are up nearly 200% since reaching a post Financial Crisis low in 2009, driven by economic recovery, monetary stimulus and a starting point of cheap valuations. However, it seems unlikely that these strong returns will be repeated over the next ten years. This is because the starting point is less attractive. Compared to 2009, debt levels are higher, valuations are higher, and monetary policy has started to tighten. Second, short term risks are elevated thanks to valuation bubbles in certain parts of the market at a time of heightened political risk.

The key to equity ownership is to ensure you are never in the position of being a forced seller when markets are weak – we help manage this risk for our clients via the tools of diversification and asset allocation.


Points of View: 2017

Despite heightened political risk, 2017 turned out to be a good year for equity markets. This was in large part thanks to accommodative monetary policy and a supportive economic environment of low inflation and steady growth. This week I will be looking at a couple of the key topics of the year.

In the UK, Theresa May has managed to cling on to power having unexpectedly lost her parliamentary majority in June’s General Election. Her authority however remains in doubt and this heightens the possibility that a resurgent Jeremy Corbyn will trigger a change of government and/or a shift towards policies that the market perceives as business-unfriendly and risky.

Central Bank policy also continued to greatly influence markets, as historically low interest rates and quantitative easing have pushed borrowing costs down and thereby promoted the further accumulation of debt. According to the Institute of International Finance (IIF), global debt levels continued to rise in 2017 and total global debt has reached a record high of $217 trillion (327% of global GDP) compared to $149 trillion in 2007 (276% of GDP).

In contrast to uncertainties discussed above, there has been ample evidence that global growth is now at its strongest since the Financial Crisis of 2008 and that a prolonged but muted recovery is at last turning into syncronised global growth. With this growth being neither too hot to cause excessive inflation, nor too cold to derail consumer spending and profit growth, investors are currently enjoying “Goldilocks” conditions, which has contributed to a strong year for equity markets.

Points of View: Bitcoins

At the moment investor news is flooded by the Bitcoin phenomenon.  Bitcoins were the first decentralised digital currency, which were created in 2009 following concerns for the global banking system after the financial crisis.  The price of bitcoins took nearly 5 years to break through $1000 but has recently exploded in value and now fluctuates by $1000 in a matter of hours.

Bitcoins are essentially a string of computer code.  They cannot be printed by a central bank and are instead “mined” by computers solving a complex mathematical problem that unlocks its security.  Every 10 minutes the miner who solves the problem is rewarded with 12.5 bitcoins.  The number of bitcoins rewarded started at 50 and halves approximately every 4 years, up to around 2140 when the last bitcoin will be mined.  This means there is a limit of 21m bitcoins that can exist.  Transactions in bitcoins are only confirmed at these 10 minute mining occurrences.  The transaction history of a bitcoin is known as the blockchain and confirms the current owner of a bitcoin.

So should we consider bitcoins as an investment?  For us, an investment has to be based on certain fundamentals such as its ability to generate an income – without this one cannot calculate an intrinsic value.  On this basis we do not consider bitcoins to be an investment. Indeed, the incremental buyer of bitcoins now seems to be motivated by the fear of missing out and desire to make a quick gain, rather than concerns about the financial system and traditional currencies.  This has all the hallmarks of speculation, not investment.