Why it’s crucial to plan for the retirement lifestyle you want
Gone are the days when the majority of individuals were part of a final salary pension scheme and were relatively clear on what they would have to live on when they leave the workplace.
Changes in pensions legislation mean that people now have more decisions to make. For example, some want to give up work early to enjoy time with their family or travel the world, while others are keen to work beyond traditional retirement age. The range of choices available can be time-consuming to sift through, and even overwhelming. That’s why experts believe it’s vital for people to plan ahead to find what best suits their needs.
And in the UK, 'baby boomers' – those aged 59 to 76 – who are either approaching retirement or who have already given up work control nearly 80 per cent of private wealth. They are therefore an important part of the economy and need to plan their finances carefully. And the report from Dunstan Thomas, a consultancy firm, found that many baby boomers want to work longer than previous generations.
Paul McCabe is Chartered Financial Planner at Acumen Financial Planning and has more than 25 years of experience in financial services. He says: “It’s crucial to have a financial plan in place for retirement. It’s an absolute imperative that people take control of their financial plans.
“Just a few years ago, I would say the majority of the workforce would have been in a final salary pension scheme. But now clients are trying to accumulate a level of capital to then convert into an income. With that comes a great deal of responsibility.”
In terms of when people should start thinking about their financial situation in retirement, McCabe explains that it is not a one-size-fits-all answer; it’s a personal decision based on individual circumstances and aspirations.
“A client should seek advice as soon as they start asking themselves the question of when they are going to retire,” says McCabe. “It’s feasible that a 21-year-old could ask that question, or someone who is just six months away from retirement. It’s difficult to put an age on what triggers this question, but as soon as it comes up it’s best to get advice immediately.”
Although individuals might realise the importance of planning for retirement, there are various reasons why they might defer the decision making. McCabe adds: “People sometimes turn a blind eye to something they’re maybe slightly scared of, or worried about. There may be a fear being told they might have to work longer than they hoped, or that they’re not going to have the lifestyle in retirement that they were looking forward to.”
He believes the financial services sector also has a role to play in making it easier for people to prepare for their future beyond work. He points to the need for advisers to break down jargon into terms that can be readily understood. He says that illustrating people’s finances more clearly would help, as well as education.
“Things such as basic online tools and calculators can help with accessibility by allowing individuals to punch in numbers to see where they are and what more they need to do for retirement,” he says.
When talking to clients about their personal requirements around retirement planning, McCabe introduces an acronym to ensure all bases are covered. This acronym is ‘PIPSI’ and refers to: Protection; Income Protection; Pensions; Savings; and, finally, Investments.
“I take a holistic approach with all clients and PIPSI helps establish priorities,” he says. “We start with protection and income protection needs, before moving onto pension planning, such as looking at how funds can be made more efficient and discussing what level of investment risk is appropriate. I’ll always review a client’s levels of savings and investments and check they have enough money on deposit to meet any immediate needs. Inheritance tax will also be discussed.”
The age at which people retire is no longer set in stone, and the UK Government is encouraging individuals of all ages to return to the workforce to give the economy a boost. In the UK Budget on 15 March, Chancellor Jeremy Hunt scrapped the £1.07 million lifetime allowance on tax-free pension savings, partly in an attempt to stop doctors and other professionals from taking early retirement.
Again McCabe sees the choice of when to retire as a personal decision that should include a range of considerations. “I see my role as working with clients to calculate a time when they can afford to stop working. But, certainly since the pandemic, there is a bigger focus on mental health and the benefits to human beings of interacting with others,” he explains. “We can say to a client that you are financially independent and in a position to retire, but they should look at what motivates them. Perhaps they don’t want to do the same job as they have been in for 40 years, but would like to try something new.”
To conclude, McCabe explains that he always advises clients to ensure they are retiring ‘to something’ and plan for what will give them a fulfilling life after work.
To find out more visit www.acumenfp.com