In your twenties, if you tell people of a similar age you work in financial or retirement planning, they generally say “oh” and the conversation ends there. Once you get to your forties, it seems that people start to have a lot more questions.
The questions typically are around, am I on track? What size pension do I need? It seems that most people are pretty good at setting a pension up (or not leaving their employer’s one) but actually have no idea what they are aiming for or where they are heading.
In addition to this, you often get articles in the press telling you what an “average” person your age has saved for retirement. This can make you feel good, but just because you may have saved more than the average person, it doesn’t necessarily mean you are in a good position. The average savings doesn’t necessarily equate to an average standard of living!
So, the answer to what you need is “it depends”!
The two main points it depends on are:
· When do you want to be able to stop working?
· What sort of lifestyle do you want?
If you want to work until age 68 (current state pension age for anyone who is 40, assuming you qualify) and think you can live off £11,973 (today’s terms) per annum, then perhaps you don’t need much. If working to 68 seems way too long and £11,973 per annum sounds impossible to live off (it could just be bills and food and not even a TV), then you need to make sure you have a plan in place.
It is likely your retirement (if you are lucky) will be in two halves. First half, you will be younger and fit and have the energy to do what you want to do. The second half, you will be old, perhaps less mobile and it will be too late to do the things you wish to do. Therefore, the first half is likely to cost more, spend the money enjoying yourself whilst you can and not regretting it when it becomes too late.
A key part to financial planning is thinking about what you want to do and getting those things ticked off. Not putting off what you can do today, as you don’t know that tomorrow will come. Although that may sound a bit depressing, it isn’t if you understand what you want to do and do them, it is if you do nothing about it and time creeps on.
At this point in your life, do you know what you spend? You may know your food bill, but what about running a car, or renewing it every so many years? What about holidays and general entertainment? I spoke with someone recently who estimated they needed £1,000 per year for going out, they then realised that was not much more than a monthly pub meal as a couple!
A budget is boring, it is working out what you spend and sticking to it whereas a plan allows you to understand what you want and work towards it. Work out what you spend now, how will this be different in the first half of retirement? Remember, you are not looking to cut costs, by the time you stop working you will probably have spent two thirds of your life working, so you want to enjoy yourself.
When do you want to stop working? You may love working and not want to stop, lucky you! BUT, everyone wants the option to stop if they want to, you don’t want to keep working once you have had enough. If you retire at 55 you’ll be young, will you have enough to fill your time for perhaps twenty healthy years? If you wait until age 68, maybe you’ll only get a couple of healthy years?
Once you know how much living costs you and you know when you want to have the option to stop working, you will be closer to answering how much you need!
This of course is you planning for your future assuming it all goes to plan, you also need to be prepared in case the unexpected occurs, to protect yourself and your loved ones.
At Willowhurst Financial Planning we specialise in lifetime financial planning. We typically work with people who are 40+ to build a plan for their future, providing peace of mind.
We talk to all sorts of people in all different circumstances. Our first meeting is on us, so costs you nothing and can be online or in your home (in Surrey). Even if you have little assets in place, we would enjoy a chat with you so please contact us by phone, email or drop us a message, we’ll take a few details and we will arrange a suitable time for the meeting. There is no obligation for you to proceed, so we may only meet the once if we don’t feel the service will benefit you!
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.
