I’m often surprised by the way that some people react to my question about their aspirations for their future lifestyle.
I’ll typically ask new clients what they spend their disposable income on. For example, many like to holiday. So, I ask how many holidays the couple take now – while still working. I’ve never met a couple who plan on taking less holidays in retirement than they do now, but many haven’t thought about how they will finance them.
You’ll have more time when you’re retired, too. Generally, people won’t want to be worse off in terms of holidays than when they were worked. But some people do not always face up to reality. It’s not that I mind, of course, but I want to do the best I can for every client and that sometimes involves a reality check.
We use Lifestyle Financial Planning – a methodology that combines today’s personal financial picture with an aspirational one in the future. We track gaps and aim to bring retirement dates forward or mitigate any income shortfalls to realise the aspirational retirement lifestyle the clients have sketched out. The process involves many calculations, including value of assets, inflation and possible investment performance, but the most critical numbers really are how much money a person will need to live after they stop work. After all, how much is enough?
I always say to clients that the most important things they can do is to be realistic about what they will need. There is no point engineering an early retirement only to find that your income cannot match your outgoing without some significant compromises.
Some people find it hard to peer into the future and maybe some just don’t want to. But I read two articles recently that take the subjectivity out of it all. The first in FT Advisor (22.2.17) looks at the boom in expenditures by the over 50s:
More time = more money (but how much is enough?)
“Saga Personal Loans found that two thirds of those surveyed had had major work done to their house since turning 50, while they typically take seven foreign holidays between the ages of 50 and 60.…
Many respondents said they had noticed that more work needed doing to their homes since retirement, prompting a boom in spending on repairs and improvements. Typical over-50s spend £13,000 on a new kitchen and £5,000 on a new bathroom.
A recent study by Tilney found that the average household spent £893,500 after the age of 50, with £420,500 of this after the age of 65.
As people get older a smaller percentage of their money is spent on housing costs and more on having fun, Tilney found.
Andy Cowan, head of Financial Planning at Tilney, said that the study showed that the top quarter of households spend nearly £3m in total, “much of which is when they are no longer working and can really enjoy the fruits of their labours.”
So, like it or not, you’ll probably be holidaying and home-improving more in the future, so you need to plan for it now.
Living longer
The Telegraph notes that: A study by Imperial College London and the World Health Organisation has found that men born in 2030 are expected to live until they are 82.5 years old, and women until 85.3. The gap of 2.8 years is down from 3.8 years in 2011, 4.6 years in 2001, and 6.3 years in 1971.
The latest study chimes with research by the Office for National Statistics (ONS), published in 2015, that showed that well-off men in professional jobs can expect to live for 82.5 years – higher than the life expectancy of the average woman (82.4 years). Over the past 40 years, the average man has improved his lifespan by seven years, three more than the women.
So, again you need to be realistic. If you live for longer, you’ll need more money. I get a genuine pleasure out of seeing people I have worked with over time retire early or retire on time and with the lifestyle they want. But the ones that fare the best are those who don’t kid themselves about how much money they will need to have a happy and fulfilling retirement.
What’s your number? Do you know how much is enough? Do you know when you can stop work? If not, we can help you find out. Just get in touch.
And for the more curious, if you want to know where people are predicted to live the longest, have a look at this:
Click here
Thanks for reading.
Yours,
John Davies
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