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Do you have enough?

I expect you’re not alone in thinking that it’s simply about working out how much you have, how long it needs to last and dividing one from the other to give you an annual income figure – and can you live on that, right?

SOUNDS SIMPLE?

You have a spreadsheet that shows your property portfolio, your ISAs, your pension pot, your bank accounts. You’ll get a state pension to add on at some point.

Your property portfolio is interest only, and you know you’ll have to pay the mortgage debt off at some point, but you haven’t really got a plan in place yet …. but you’re sure you’ll be alright.

You’re 55, you’ve found a Longevity Calculator online that gives you until age 83, you’re worth £1,250,000 (excl. your main home – you need somewhere to live) so you’ve got £44,600 per year to live on (plus some income & maybe growth)

Sounds OK?

Is that enough? It’s less than you spend now, you’ve convinced yourself you’ll spend less once you stop working and you’ve always got the value of the house …… to downsize

Well …..

  • You don’t want to run out of money before you run out of life
    • But neither do you want to deny yourself things today and die with a bank balance of £2m, paying at least £400,000 in inheritance tax in the process
  • Longevity risk – the online calculator estimation is a median number – 50% of people will die before then and 50% will last longer. What do you do if you are still alive at 93? 98?
    • In fact, an average non-smoking 60 year old male should reach age 88, and 91 for a woman – A 3-DECADE RETIREMENT & RISING
    • If you’re reading this, it is because you are looking for financial planning advice and therefore you are above average, and so you potentially will live longer than above
  • Inflation risk – have you taken into account inflation? Money is purchasing power, and inflation destroys purchasing power
    • Thinking of the inflation of ESSENTIAL SPENDING – the cost of a 1st class stamp in 1986 (just over 3-decades ago) cost 18p, today it costs 67p (3.7 times higher).
    • To put that into perspective, a lifestyle with £20,000 of essential costs in 1986 now costs £74,000 just due to inflation
    • Thinking of the inflation of DISCRETIONARY SPENDING – the cost of a decent pint of beer in 1986 cost 96p, today it costs £4.50 (4.7 times higher).
    • So again, putting that into perspective, a lifestyle with £5,000 of discretionary costs in 1986 now costs £23,500 just due to inflation
    • Just look at those numbers, a lifestyle of £25,000 in 1986 (80:20 split between essentials & discretionary spending) would now cost just shy of £100,000 … wow!
  • Do you want to live the same life for the next 30-40-odd years?
    • Experience tells us that your life will progress through different stages depending on when you’re most active and when you want to slow down
    • In the active years you’ll enjoy more hobbies and holidays, whereas when you slow down it’s likely that you’ll spend less
    • Then they’ll come a point where there’s a cost of support to continue living independently in your home in later years or the added need for a care home
  • What about big one-off costs?
    • By giving yourself a fixed annual sum, you’re not allowing any level of flexibility and are in fact denying yourself so many things you might want to do as life progresses
    • The dream car, big holiday trips, helping your children or getting that new kitchen fitted?
  • What is the plan for the property portfolio?
    • Who’s going to run it when you are off on trips?
    • How’s it going to be managed when you’re not able to have an active interest due to age or illness?
    • Can you take the hit on income to have it managed for you?
    • What will you do about mortgages post 75 or 80?
  • The evidence states that there is a strong reluctance to move as you get older, many never never actually downsize, & those that do often the money released is much lower than expected
WE THINK THERE’S A BETTER WAY

We take a different approach to calculating expenditure now & into the future, and really understanding what “enough money” really looks like. This will depend on your own unique set of circumstances, what you’d like to do and what assets you have.

Through a financial life plan, you’ll be able to see how your assets can fund the lifestyle you really want, when you can slow down, stop completely & retire, and what you’ll have left at the end

WE CALL IT FINANCIAL LIFE PLANNING AND WE’RE PRETTY GOOD AT IT