How to maximise your wealth window

How you allocate your savings during your wealth window has a massive impact on your lifestyle in retirement.

Your wealth window is the latter years of your career when your earnings and savings rate are at their highest. It is one of the key stages of life where a financial planner can add tremendous value to your circumstances.

It tends to be the 5-10 year period before retirement, when your earnings and subsequently your taxes are highest which means there are a number of options a financial planner can discuss with you to help improve tax efficiency.

The clearest example of this is making the most of pension contributions, which attract tax relief at your marginal rate of income tax. You could contribute as much as £60,000 to your pension per tax year, or potentially even more depending on your earnings and what contributions have been made in previous tax years. In cases where pension contributions are less impactful, such as high earners where the amount they can contribute to pensions has been tapered down, you could explore higher risk tax mitigation products, such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs).

It is also an important time to consider what’s important to you and what kind of lifestyle you want to have in retirement. Working with a financial planner can help you understand how much you need and what your ideal lifestyle is likely to cost.

In our experience, clients who have worked with a financial planner for at least a couple of years before retirement are less anxious about the thought of stopping work and a good understanding of how their retirement will be funded.

The biggest challenge for clients approaching retirement is shifting their mindset from being a saver and growing their capital to spending down on their assets. This is particularly important when you consider that the early years of retirement are when spending should be highest, when you have the health, energy and desire to travel and invest in new experiences.

Working with a financial planner during this period can be advantageous for two key reasons. Firstly, a financial planner can help you make the most of your hard-earned income by maximising tax reliefs and allowances. In just the last few months I can think of multiple cases where clients have benefitted from this advice, to the tune of tens of thousands of pounds in tax relief. Secondly, working with a financial planner can help you to identify your objectives and the motivations behind these so that you have a clear understanding of what is important to you and what you should be focusing your spending on.

Are you making the most out of your wealth window? If you would like a second opinion on your current arrangements, we would be more than happy to sit down with you and ensure you are on track.

For more information please contact enquiries@carbonfinancial.co.uk.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.