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Are you on course to retire when you want to?

Sep 30, 2015

Andrew Moore, Director of Goodmans Financial Planning based in our Plymouth office, explores the intricacies of retiring on your own terms. This article was originally published in the Autumn Edition of Devon Life Business & Professional .

Retirement is an odd word. It assumes that we have a very simplistic life where we work only because we have to and then stop, or retire, from that work to enjoy all the pleasures and fun we have long thought about. For many of our clients retirement is more a growing realisation that they have the financial resources to choose whether they work or not. It is about waking up in the morning, opening the curtains and having the freedom to choose how that day is spent. That kind of financial freedom is precious and I can see why those that retire successfully are some of the happiest people I come across.

This all sounds great for those that have achieved this kind of financial independence. How many people really ever get to that kind of position, and don’t most people have to grind on until their late sixties? I have lost count of the number of planning sessions where I have sat down with a couple and explored the key questions. When can we retire? Will we have to cut back? Will our money last? The biggest emotions on the table are worry, fear and doubt. But, here is the paradox. Almost every couple were in a better position that they thought. They could retire sooner than they thought, they didn’t need to cut back and with careful management their money would last. More importantly they could afford some “wild living”. What is going on?

During my career I have observed that the early years of retirement and the years approaching retirement are worrying years for many people. What do we do when fearful or concerned? We work harder, we work longer and we cut back and hunker down. Very few people can come to a settled feeling that they have enough financial resources. Very few people realise that they have the financial resources to say “enough is enough”. The decisions around retirement are made with an emotional backdrop and a reliance on what the media and government tell us is sensible.

So why is it that the underlying financial situation is often more positive than the expectations? Well, here are some thoughts that are often relevant.

Much of the cash that can be used to fund retirement comes from pieces of paper that are difficult to understand. Occupational pensions, private pensions, investments and the really complex one, the State Pension. Then there are the other bits, such as property, businesses, loans to children, part time work or ongoing consultancy. Is it any wonder that it is hard to make any sense of all of this or to achieve any clarity? Is there really any chance of understanding how these assets can produce the cash required for a secure later life?

The other area which is full of fudge and confusion is our own mortality. Most clients I meet in their sixties don’t think that they will get to their eighties. However, any investments, properties or pension capital mysteriously needs to last forever, to provide enough “interest” to provide security. Unfortunately both assumptions are wrong. Life expectancy is such that many of us will go well into our eighties, however our capital only needs to last as long as we do.

This may be controversial, but it is important to eat into your capital in retirement. You do not have pockets in a shroud. This simple act of using your capital increases massively the flow of cash during the retirement years. Importantly, this may be the one thing that gives you an early retirement, or more fun during your retirement. Those 40 years of work have to have counted for something! That something should be for you, not necessarily the next generations.

How can you make sense of your retirement? Can you buy a product from a newspaper advertisement that achieves what you want? Can you go to a financial adviser that can recommend a product to secure your retirement? Your life in retirement isn’t crafted or secured by products bought off a shelf, or investments that sound fantastic.

Whether you figure out your financial planning yourself or use an experienced financial planner you need to concentrate on you and not the money. You need to get your financial planning right; the context of your life defines how the money is used. When done well it gives you the security and certainty to retire early and to enjoy those precious years that you have worked hard for. Making that difference in our client’s lives is really why we do what we do!