How much is enough to retire?
By Alan Mellor, Chartered Financial Planner and Managing Director of Phillip Bates & Co Financial Services
I often take on a number of new clients at the start of a new year.
The holiday season will have provided an opportunity to discuss both immediate and longer-term plans. This is particularly the case for those in their early to mid-50s who are starting to think about retirement.
When can I retire? How much do I need?
Of all the questions I am asked, these are two of the more popular ones. However, the answers depend on the individual and require careful consideration before any significant life decisions are made.
I know from experience over the last 25 years that people often leave it later than they should to plan for their retirement.
Traditionally, the advice has always been that you should try and save the equivalent of half your age. For example, if you are 50 then you should aim to put away around 25% of your salary.
This is extremely rudimentary and not something we work to at Phillip Bates. Instead, we work with clients to put in place a very personalised and long-term financial plan.
We will carry out cash flow modelling that takes into account someone’s larger and smaller outgoings. How much of the mortgage remains to be paid off? Are you paying private school fees? How much do you spend – and expect to continue spending – on foreign holidays?
Our job as chartered financial planners is to provide clients with the right advice. This isn’t necessarily always what they want to hear, but the recommendations that will give them the best chance of long-term financial security.
I recently met with someone in their early 50s who said he would love to retire by the age of 57. We looked at the numbers together and agreed that this would simply not be possible. By working up a financial plan together, taking into account current and projected future spending, we were able to see how retirement in his early 60s would be achievable by taking important steps such as increasing monthly pension contributions.
I have also recently met up with a long-term client, now in his mid-70s, who retired over 10 years ago following the sale of a company in which he was a director and shareholder.
He did quite well from the sale but not as well as he and his fellow directors had anticipated.
Part of the plan we put in place was based on his desire to be able to continue enjoying a holiday home abroad until his mid-70s after which he would look to sell in order to help fund the next stage of his retirement plan.
But, following a recent review, we agreed that there was actually no pressing need to sell the home because his overall financial plan had performed well and was extremely robust.
There are lots of different factors to take into account when putting together a long-term financial plan.
Some clients choose to leave their full-time employment and take on a part-time job to help cover the gap between 60 and 66. Others take advantage of today’s more flexible pensions which give scope to take more for a few years and less later. Some people will spend extremely carefully during their working years in order to speed up the point at which they can take early retirement.
Often people simply do not realise quite how much they are spending now, let alone what they will ideally need when they do finally reach retirement.
Planning is key and the sooner that process begins the better your prospects of being able to enjoy the retirement you envisage.
Typically, we start working with clients in their late 40s, early 50s, but there is no hard and fast rule. We have some clients – often sons and daughters of older clients – who come to us in the 30s, while others will come to us much later following advice from family and friends that they should start planning for the future.
We are proud to be one of only a handful of Chartered Partnerships in the North West – combining the knowledge and expertise of our chartered accountants and chartered financial planners.
In the Financial Services team alone, we now have three dedicated chartered financial planners – myself, Helen Brown and Margo Dorozik.
Please contact us if you would like to arrange a free initial consultation.