It’s a fact that retirement is becoming a time of opportunity for many. People are living longer, and you may have many active years ahead. The end of work is the point in life when new possibilities arise, and choices are made. When you can focus on all the things that mean most to you.
What do you see when you think about retirement? New ventures or opportunities? Travelling the world? A chance to do everything you don’t have time for right now? Spending more time with the family, of course? Spending more time simply doing nothing?
Above all there are four key areas to explore when planning your journey.
Thinking ahead helps you to understand how much income you need. There’s a lot to consider. You need to work out how long you might live and what you want to do in retirement. Check your life expectancy – you can normally find calculators online that will help you do so. Consider the UK where the median average lifespan for women is 85.8 years, according to the Office for National Statistics. Yet this is an average – at least half of the population will live longer. Many might live to 100.
Many people ask if they can retire early. But you should ask yourself when you’ll be emotionally ready to retire. It’s difficult to give up a career you enjoy, especially if you own the business. Perhaps a phased retirement would be better, reducing your days or hours? That could give you more financial flexibility too.
Do you have sufficient funds to support the lifestyle you aspire to in retirement? This means understanding what you have (assets such as pensions, property and businesses) and what you might still owe (liabilities such as mortgages and loans). You also need to compare your likely future income with your expenditure and think about how this might change over time. Commonly, there’s a U-shaped spending pattern in retirement: people often spend more initially but then less as they become less active, only to spend more again if unexpected expenses occur late in life.
It’s clear there are a lot of variables to consider and some big questions to answer. At Quintet, we apply the scientific method of cashflow planning to the subjective topic of retirement planning. This tool reveals if you’re on track or if there are opportunities you can take advantage of between now and retirement to enhance the value of your pensions and investments. If you’re not on track, you might need to invest more in your pension, invest more alongside your pension or rethink your plans. Alternatively, if projections show that you have more money than you need you might want to gift some to your family or causes that you care about.
While cash has recently been achieving high returns in many countries, history tells us that over the long term the stock market has outperformed. Pensions contributions along with investment compounding are a powerful combination. When investing, you can’t influence financial markets, but you have the power to make positive decisions that will help. For instance, portfolio diversification is a useful strategy: have a wide mix of assets in your portfolio as some will perform better than others. What’s more, remaining invested – rather than trying to time the market – can lead to substantially higher returns over time. The amount you pay in fees can also make a big difference. So, too, can choosing tax-efficient investment options.
At Quintet, we share our expertise to help you create a plan that reflects your retirement goals. For instance, our cashflow models showed one client, in her fifties, that she could not afford to retire early – but realising this had the effect of re-energising her to increase the value of her business.
Whether you dream of studying astrophysics in retirement, living on the Mediterranean or simply spending time with your family, careful planning can make the most of what’s possible.
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