EVER DREAMED OF LIFE BEYOND WORK….? THOUGHT SO!
Retirement means different things to different people, but while the chances are most people are looking forward to well-deserved time out after decades of hard graft, many don’t either have a financial plan in place, or have even sought advice to achieve their retirement ambitions.
In fact, a survey, published last year by the Financial Conduct Authority, said one in seven (16%) UK adults had not really thought about how they will manage financially in retirement.
Chances are that getting organised with a financial plan is one of the smartest investments you’ll make. And, of course, regardless of what this plan ends up looking like, it pays to start early.
MAKING A START
Before planning can really begin, it’s important you have a clear idea of what life after work looks like.
Do you have a retirement goal? If your retirement started tomorrow, how much would you need each month in today’s prices to meet both your essential and non-essential expenditure? Would non-essential spend such as travel and new hobbies increase if you weren’t working?
That part’s relatively easy. What’s harder is considering the impact of inflation on your future goals: how much capital do you need to achieve the target required to meet your retirement ambitions? How much do you need to set aside each month to eliminate any shortfall?
Everything we spend our money on today will be more expensive in the future, for example a basket of groceries costing £100 today could cost just over £200 in 25 years’ time, if inflation runs at 3% per annum. And the compound effect of this can be very damaging. However, compound returns can work in your favour if your monthly savings are invested in asset classes that produce long term compound returns greater than inflation. Taking the compound effects of inflation and investment returns into account, a financial planner will calculate the capital you will require to achieve your retirement goals and calculate how much you need to set enough aside each month to eliminate any shortfall. These calculations are the foundation of a good financial plan that will deliver your financial promise in retirement.
INCOME AND OUTGOINGS
Once the financial plan is in place, you’ll need to review your current income and outgoings.
How do you set aside the required amount? Do you need to make some small sacrifices now? Then, the most suitable investments that will increase the probability of a successful outcome can be identified.
And, if you’re closer to retirement with less time to save, there are tax planning opportunities to consider as part of your retirement planning to make sure your savings last and you continue to maintain your current standard of living without outliving your savings.
All robust financial plans should follow the principles of SMART – specific, measurable, achievable, realistic and timely. Stick to these simple principles and monitor periodically.
Don’t take a chance on retirement by second-guessing or blindly ploughing savings into products. Get organised with budgeting, clearing debt and take advantage of employee benefits, so you can get the most out of your money, as well as life after work.
By Kevin Mackenzie
Published in The Business, The Press & Journal on 20 May 2019