Simplifying the Complicated
From a very young age, you’ve likely been told to save for your future. At different times in your life, that future may mean different things. For instance, it could mean you’re saving for your first home, for your children’s education, or for retirement planning. Saving for the future is truly sound advice and, whatever the reasons, putting money aside for the future can be a really positive practice.But what’s more important, saving for the future or enjoying the here and now?
Plan for Your Retirement but Enjoy Living Now
Whilst saving for the future has its benefits, I strongly believe that we should also try to enjoy the here and now. After all, what’s the point of living if you can’t enjoy life while you’re living it? It’s all well and good saving for the future but if saving creates pressure and hardship in your day-to-day life, you may find yourself wondering if all the saving and sacrifice is really worth it. For me, it’s all about finding balance. The balance of enjoying your life in the present to the extent that your resources will permit and keeping an eye on the future by creating a sound financial plan.You may have a collection of pensions and/or investments that you’ve built up over the years. Pensions are often collected from previous jobs and then just sit there. If you have a pension through a previous employer, you probably receive a statement once a year. If you’re like most people, these pension statements don’t mean very much to you or they arrive at a time when you’re not in financial planning mode so you file them away to be dealt with later.
But It' YOUR Money!
I’d like to put a different spin on this: These pension statements you receive and file away are actually telling you how much money you have. The money is as real as if it were in your bank account right now. What would you do with that money if it were sitting in the bank waiting for you to withdraw it? Don’t disassociate yourself with the fact that this is real money. And it’s yours.Money can be intimidating, but it doesn’t have to be and it certainly doesn’t have to be complicated. From a retirement planning perspective, at some point you’ll probably want to be able to live a good life without needing to work, right? There are a combination of things that are going to enable you to do this, including:
Any final salary pensions you have from employers
Lumps of money sitting in other pensions
The combined value of any savings or investments you’ve built up
State pension (this this is a sore subject at the moment for people of a certain age)
You may also plan to downsize to release capital from your home to add more money to the pot that will cover your retirement, or maybe you’re expecting (or, perhaps, hoping!) to inherit some money as well.Wherever it comes from and whatever form it takes, you need your money to live longer than you or at least to run out at the same time you do. To do this, you need to be a bit creative with your thoughts and dreams and then build a retirement plan around it.Take a moment and picture a life that is meaningful and enjoyable. What does this life look like? Don’t hold back. What aren’t you doing now that you’d love to do? If you found out you were going to die tomorrow, what do you think you’d regret the most?This is a daunting exercise for many but, with the right help and support, it can be terribly exciting process to go through. It takes time and there’ll be many variations, I can assure you but, as you go through the process, I’m pretty sure you’ll start to feel clearer and energised.
Attaching the Pound Signs
Next, we need to find out what this ideal life might cost and start formulating a retirement plan. Once you start attaching numbers to things, you may c0me down to earth with a bump and realise that you need to adjust some of your goals to be a bit more realistic. On the other hand, you may find that your resources could cover things sooner than you think!Whatever the outcome of making a financial plan, isn’t it better to know where you’re likely to be well in advance of arriving there?
The Retirement Plan
When we meet with a new client, we typically start with what we know about that client– or, at least, what we have a good idea of. These things include:
How much you have right now (pensions, investments, savings, etc.)
How much you might be able to save between now and retirement
What ‘secure’ income you’ll get (final salary pension, state pension, etc.)
What your post-work life will cost (month-to-month)
What big expenses you might have along the way (new car, gifts to children, etc.)
Scenario 1
Scenario 2
Now we factor in some assumptions of inflation (which can be the ruin of many a retirement plan) and investment growth (always best to be very modest on this one) and we can start to build a picture of what it all might look like:In the first scenario, the money will go down during retirement but it won’t run out. In the 2nd scenario, the money will run out.
What Happens Next?
There are quite a few options depending on what things look like but the key ones are:
Lower your sights
Save more for your retirement
Take more risk in the hope of getting better returns (take care with this one!)
Working with you to find the answers is what we do. It’s where we add value and meaning to the lives of our clients. Life’s not certain so, once a plan is devised, it’s important to review, review, review.