How Medics Should Save For Retirement
– Get The Snowball Rolling

In the ABC of financial planning I spoke a little about retirement planning. Some may have been slightly scared at the thought of saving £1.25m.

Is this an unrealistic goal?

Fear not – a pension pot of £1.25m is easy, and so is £2m if you plan carefully.

Now please note – what I say below is guidance, not advice, and predominantly these guidelines are for those with small pension pots. For those that have accrued large pension pots (i.e. approaching or over £1m), then I would seek advice on how to further your planning for retirement, as pensions may not be the best vehicle for you.

So let’s get started. There are a variety of ways you can save for your retirement – don’t limit yourself to just one vehicle!

1. Final salary/career average pension.

For most of you, this will be the NHS pension and the NHS pension is brilliant. The NHS contribute a lot into the scheme, you accrue benefits that are guaranteed in retirement and are based on how long you worked for the NHS. For example, if you worked for the NHS for 30 years and your final salary was £100,000, then you would receive an inflation-proofed income (in today’s terms) of £37,500 per year. (Please note this assumes you are in the 2008 NHS pension). You can find out what rewards you have accrued on the following link https://www.nhsbsa.nhs.uk/employee-section

2. Non-work pension – Personal Pension / SIPP.

Now some of you may have left the NHS. Some of you have your own company, some of you are self-employed, and you don’t have a nice employer giving you free money and a ready-made pension. No, you need to do it yourself. Well don’t delay – do it now.

The obvious tool is a personal pension. You make a personal contribution, the government says ‘Well done!’ and gives you a further 20% straight into a pension, and you then invest the money for the long term. If you are a higher-rate taxpayer, you can also claim the contribution on your tax return and claim further tax relief.

If you have a limited company, the company can make contributions on your behalf. This will save on corporation tax at the company level and your personal tax (because you are not drawing an income from the company).

3. SSAS

This is a bit more exciting. Investment options are more diverse and it is an effective tool for those with a limited company who perhaps wish to buy a private practice through their pension.

4. ISA

This year the ISA allowance is £20,000. Use it! It is tax-free savings and can be invested for the future.

5. LISA

If you are under 40, you can also save £4,000 into a LISA and receive tax relief at 25% from the government. So that’s an additional £1,000 from the government!

The £1.25 million pot

So how do you reach the £1.25m pot?

Easy.

Let’s say you started saving into an ISA at age 40 and saved the annual allowance of £20,000 per year (£,1666 per month). If you carry on doing this until you are age 60, and the ISA grows at a modest growth rate of 4% per year, well, that’s £657,534.99.

Now let’s say you had accrued some benefits in the NHS pension, say, a guaranteed income of £12,000 which is a pension pot of approximately £240,000.

Now let’s say you left the NHS and, at age 40, you set up a private pension and contributed £800 per month before tax. If this is a personal contribution, you get tax relief at source, so the actual contribution going into the pension is £1,000 a month. Again, let’s say you continue this good habit for 20 years and the fund has a modest growth rate of 4% per year. By the time you are 60 you will have a private pension pot of £367,997.21.

So the value of your retirement pot – NHS pension, private pension and ISA – comes in at £1,265,531.

As I said – easy!

Okay, I hear you – ‘But I don’t have £2,466 per month to put into my retirement!’ Okay, fine, but do what you can. The key to saving is to start ASAP.

The earlier you start the better. Why? – The beauty of compound interest rate.

Someone that saves £400 per month from age 50 to 60 would have contributed £48,000 in total, accrued £11,096 in interest (assuming 4% growth) and will have a total pot of £59,096.25 at age 60.

But . . . someone that saves £100 a month from age 30 to 60 would have contributed £36,000 and accrued £36,636.29 in interest (assuming a 4% growth) which gives a total pot of £69,636.29 at age 60.

Yes – you read that correctly.

So don’t delay – start planning for your retirement.

Steps:

• Check what you have accrued in the NHS scheme
• Continue to plan for retirement
• Take advice on how much you should save and which of the several options for saving is most suitable for you.
• By making the right choice you can not only have a decent retirement fund but also be increasing your net wealth and saving tax on the way (more on that later)!

As always I’m here to help, feel free to contact me direct if you would like further guidance on how to best plan for your retirement.