Reaching the Summit
Edmund Hillary became the first person to reach the summit of Mount Everest in 1953, around 5,000 more people have followed in his footsteps.
Unfortunately, around 300 people have also died on those slopes over the years, many after reaching the summit first.
The mix of high altitude, lack of oxygen, and extreme cold, not to mention the treacherous terrain, has beaten many climbers who only hours previously had been celebrating the achievement of literally standing on top of the world. As one veteran mountaineer put it:
“Getting to the summit is optional, but getting down is mandatory.”
Let’s assume, for the purposes of this article, that you’ve reached the summit. You’ve diligently saved what you think is enough and now it’s time to ‘flick the switch’ and start drawing money out. You’re no longer working and you want a happy and long retirement.
Getting Down Without Slipping Off
The best way to get back to base camp safely is to recruit a Sherpa. These expert guides will carry the kit, recognise when the weather is turning, and know the terrain better than even the smartest climber.
Navigating a successful retirement is a lot like descending a mountain. You’ve done the hard work and earned the right to enjoy the view from the top but now you need to prepare for the second leg of the journey.
And for this, instead of a Sherpa, you need a financial planner. Their job is to guide you safely from the summit of your working life, through the pitfalls, ravines and avalanches of the financial market, into a comfortable retirement with an income that meets, or even exceeds, your lifestyle goals.
So, if you’re thinking about or are already drawing income from a Drawdown Pot, ISA, Bond or any other kind of
investment, you need to understand the specific risks involved and how to make sure your money lasts a lifetime.
The Risks of Descending
Some of these will be obvious but I think it’s worth spelling out.
Less Earning Flexibility
Once you retire, your earnings have peaked. And with no other income beyond your financial assets, state pension https://www.gov.uk/new-state-pension/what-youll-get, etc, it’s important to take less risk with what you have.
Slightly Less Brain Power
Research shows that as people age, their financial decision-making becomes impaired by around 1-2% a year. And it’s no easy thing to manage withdrawals from a drawdown portfolio.
In fact, it’s a full-time job in itself and requires specialised qualifications and experience to recognise the risks and rewards of each decision.
I promise I’m not trying to insult you here. It’s already happening with me and I’m only 54! We might as well face facts!
Inflation
A major challenge is preventing inflation from depleting the buying power of your income through decades of retirement. For instance, a yearly income of £1,000 in 1990 had the buying power of £476 by the end of 2020 which is a reduction of more than 50% over a 30-year period using the Consumer Price Index.
When Are You Going to Die?
Nobody wants to think of their death but the reality is that a healthy adult in the UK born around 1960 has a 10% to 15% chance of living to be 100.
This poses a different kind of problem which is how do you ensure your retirement pot will last you for your whole life? Especially when you don’t know how long you’ll live.
A robust withdrawal plan will ensure you’ve got money right through to those twilight years. The goal isn’t to precisely predict how long you may live. The goal is to address the risk that you outlive your wealth.
Something Called Sequencing Risk
Sorry to get a bit technical here but it’s important.
Poor returns early in retirement can cause damage to your prospects of a decent income for life. Sequence risk is often confused with market volatility (a traditional measure of investment risk).
Markets deliver good returns over the long term but when you start withdrawing from your investments, it becomes trickier to maintain those returns and where you are right now, at the start of your retirement journey, sequence risk is the biggest problem you face.
The best way to mitigate these risks is to approach them in a scientific way. And that’s where a financial adviser comes into their own. I covered some of what’s involved in a previous article.
Feeling Worried?
I’ve not written this to scare you. I just thought it would be useful to set out some of the issues you’ll need to think about when descending from the mountain. Sometimes, as we know, bad stuff just happens and there’s not much we can do about it.
That said, with a clear plan of descent and some sensible strategies in place to reduce the ‘known’ risks, you’re chances of getting back to base camp in one piece will be good.
Take some time to think about what you really think life will cost you when you’ve finished work. Take into account potential shocks and consider inflation. Speak to someone like me (I know I’m bound to say that!) to help you and to challenge your thinking. Do as much as you can to descend safely.
As I said before, it doesn’t matter what stage of retirement you’re at. Slightly older people may have a steep descent towards the end when they have to consider care costs. That can be a worrying time for them. Planning / thinking about this sort of stuff should never end.
I’m here if you need me. If we haven’t met, you might want to look at my website to find out a bit more.
I hope it’s been useful and look forward to speaking to you again soon…