Your retirement is one of life’s big events. Having spent a career working, waking up one morning with no responsibilities and the rest of your life in front of you can be a wonderful – if scary – prospect!
In my experience, those clients who think carefully about their retirement and plan well get the most from it. So, here are five things you should do if you want to enjoy a successful retirement.
1. Build a retirement vision
So much of your view of retirement may come down to the figures. Can I afford to live on my pension? Do I have enough?
Instead, planning your retirement needs to start with building a vision for what your post-work years look like. How are you planning to use your time? What do you plan to do on any given day?
Lockdown has given millions of people a glimpse into what retirement might look like. You have no commute, you’ve been able to spend more time at home, and enjoyed the company of your family more often. Is this what you want for your retirement? If not, what do you plan to do?
And, when they give up work, many people miss the structure of a working day and find it hard to adapt. How do you intend to spend your day, and replace the structure that work brings?
Only by having some idea of what you want to do with your retirement will you have some idea of how much it will cost. Which brings us to…
2. Work out your spending assumption
This is a process that you should do as early as you can. Once you know how you plan to spend your retirement, it’s important to work out how much this will cost and what money you will need.
A 2019 survey of thousands of retired Which? members found that the average retired household spent just under £2,220 a month, or around £27,000 a year. This covers all the basic areas of expenditure and some luxuries, such as European holidays, hobbies and eating out.
If you want to include luxuries such as long-haul trips and a new car every five years, the Which? survey found that you would need £42,000 a year.
Before you retire, you should do some careful budgeting or work with a financial planner to undertake a cash flow analysis of how your finances will look in your post-work years.
3. Think about when you will be ready to stop work
Many people think about retiring when they feel they are financially ready, rather than when they are emotionally and financially ready. It could be one of the reasons why, according to research by the University of Manchester, around one in four workers ‘unretires’, mostly within five years of retirement.
Are you really ready to give up the responsibility, structure and social aspects of your day? For many, the idea of never having to step back in the office can’t come too soon. For others, leaving a career they have built over decades is too big a step.
Solutions such as a phased retirement – perhaps continuing to work part-time or on a freelance basis – may therefore be right for you.
4. Ensure you have the financial capacity to retire
If you’re ready to retire emotionally, but not ready financially, you’re likely to be disappointed. So, it’s important to plan ahead and make sure you have accumulated enough wealth, not just to get by, but to afford the lifestyle that you want in retirement.
Wondering if you have ‘enough’ is one of the main sources of anxiety for many of my clients, who worry that they will run out of money before they pass away.
Again, working with a financial planner can give you the confidence you need to make the leap. You’d be astonished how many clients I meet who are already in a position to retire. They could literally walk out of the office that day and, making reasonable assumptions, live the life they wanted.
5. Build a financial plan
As a financial planner, it won’t surprise you to learn that I advocate putting a comprehensive retirement plan in place. However, there are convincing reasons to do so.
As we have seen, your retirement plan should be about much more than numbers and products. You must understand what you want to do before working out how you achieve those goals.
Once you have a clear idea of how you would like to spend your retirement, it’s time to put a financial plan in place to help you achieve these aspirations. Working with a financial planner can help, here, as there are so many different issues to consider:
- Some costs will come down when you retire – your mortgage may be repaid and you may not be making savings or pension contributions – but others will increase. The cost of holidays and hobbies will go up, and you might have to fund your own medical insurance, phones and cars
- There will be one-off costs to consider, such as a new car, buying a holiday or motor home, or home improvements
- You may want to help your children, either through university or onto the property ladder, or pay for their wedding
- You may need to think about funding later life care
- If you have a larger estate, there may be Inheritance Tax issues and estate planning matters to address.
These things cannot be dealt with in isolation, and a financial planner can take all these variables and work them into a comprehensive, manageable plan that will let you live the life you want.
If you want to have a chat about your financial plan, or you’d like to get financially organised and need some professional help, please give me a call on 07769 156 250.
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