Like it or not, you’re getting ever closer to an important crossroads in your life. It’s a decision you cannot make with the use of experience, because it hasn’t happened to you before.
You’re feeling a little bit nervous and quite a lot excited, all at the same time.
Of course, I’m talking about the most important question you face as you approach the end of your career:
Do I Have Enough Money?
Knowing the answer to that question will make the difference between taking regular trips to Barbados, or choosing own-brand beans at the supermarket.
Forgive our facetiousness – we know it can be a really stressful process.
More recently, the idea of “retirement” has become increasingly irrelevant. Gone are the days of finishing work on a Friday and waking up retired the following Monday with a bus pass in your wallet and grey cords in the wardrobe.
Financial Independence is a much more fluid concept, and often sees people take a step back from the grind into something part-time first, or taking the chance to do something totally different for a few years.
Changes in the financial landscape sees more people retiring without the benefit of a gold-plated, inflation protected, bulletproof income in the form of a Final Salary pension. Some might still have them, but more likely they’ve moved around a bit as their career evolved, and are now trying to evaluate whether their mixture of collected schemes will allow them that trip of a lifetime, or whether they can make a gift to grandchildren.
The Problem With Calculators
Calculators are fine, but the output is only as good as the input.
It’s a very difficult job for a person, without professional help, to make informed choices about when they can declare themselves Independent. There are simply too many moving parts.
What about my ISA’s and Savings Accounts? How do they apply to my retirement strategy?
How much Tax-Free Cash should I take from my pension? I’d love to buy a posh Camper Van and explore Burgundy’s wineries.
What about my shares? If I sell them, won’t I get taxed?
Trying to amalgamate and homogenise your asset base can be daunting, and in many ways that’s exactly how it’s designed to be. Many different products, many different tax treatments – how do they work together, efficiently, to deliver my income needs?
Assets Everywhere, No Strategy
Therein lies the rub.
The design of a strategy to provide income from your assets is a tremendously complex process, and is one which can be fraught with potential pitfalls.
It’s not your fault, remember. You cannot rely on your experience, because you haven’t done it before.
Using a coherent strategy to drive income into your bank account is the only sure-fire way to enjoy a sustainable, long-lasting, well-funded, enjoyable retirement.
And these decisions shouldn’t be made in the year before you hang up your boots. Better would be 5 years before, or even better 10 years. The longer you have to plan, the better.
Changing Needs
When you’ve looked at whether or not you think you can afford to give up your career, you probably haven’t factored in how your income needs might change throughout your halcyon days.
In reality, we would urge you to think about your income needs in the form of a U-Shape, rather than a straight line which increases by inflation every year.
The first part of your retirement is likely to be very active. Going on that trip of a lifetime, making the most out of your leisure time, eating and drinking well.
In the middle part, life will slow down somewhat as you become less active. This will be reflected in your expenditure. You might downsize the house and think about gifting cash to family.
The latter part of your retirement may see costs creeping back up – owing to the cost of care and other unforeseen expenses.
So think in terms of a U-Shape, and you’re more likely to be close to reality.
Cash Flow Modelling
Wouldn’t it be great if there was a way to bring your finances to life, so you can explore how your assets interact with your needs for income throughout retirement, even in respect of your U-Shaped income profile?
If only this model could take into account the tax wrapper, tax treatment of a withdrawal, and accessibility profile of your assets.
It’d be good if this forecast can show you the effect of growth and losses within your portfolio over time.
Can this software give you a really precise summary of where you stand today, and help to show you whether you can afford an extra holiday per year, or gifts to the grandchildren, or what your Estate will be worth at various points in the future?
We use Cash Flow Modelling to bring your assets to life in an easily-digestible format which can be as complex or as straightforward as you’d like it to be.
Without powerful tools such as this, you’re almost relying on guesswork, or the experience you don’t have.
At such an important juncture in your life, you need all the information at hand in order to make the correct decisions – because these decisions you’re facing now might actually make the difference between Barbados or Baked Beans.
As always, feel free to get in touch for a 15min chat about your goals and how we can help you achieve them. After all, a goal without a plan is just a dream.
- Tax treatment varies according to individual circumstances and is subject to change.
- Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.
- Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people
- The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
