This month, our personal finance columnist, Mitch Hopkinson, looks at retirement planning and how best to prepare for ‘your longest summer holiday.’ By starting to save for your mature years as early as possible, the chances of being able to enjoy an ideal retirement are much higher.
Mitch, a recipient of the ‘Financial Times Independent Financial Adviser of the Year Award’, is Head of East Midlands at deVere United Kingdom, the UK division of deVere Group, one of the world’s largest independent financial advisory organisations.
Now that England are out of the World Cup, I thought you might like some ideas about how better to spend your summer?
You may know that retirement is often described as ‘your longest summer holiday’. Why not spend your extra (new found time) focusing on your retirement? How do you see yourself in retirement?
Will it be a youthful Roy Hodgson for you, endless days in the sun playing tennis with your chums (after all he needs a break from football)? Or will you be stuck at home watching Wimbledon on the TV and arguing with the wife about whether we have to wait years for someone like Andy Murray. Can he do it again and cheer us all up?
Well it depends on your planning and willingness to think ahead. I can promise you a retirement more like the latter if you rely on the State to fund your retirement. I think you might just be able to afford a TV license. Even if you qualify for the new increased state pension of around £150 per week, which is certainly not a foregone conclusion unless you have at least 35 qualifying years of national insurance contributions, it is unlikely that this alone will provide you with enough to have a comfortable retirement.
If you are not sure what you will get, then make some enquiries and complete a BR19 form to get an estimate for yourself, this will show you how you stand with this basic benefit.
In order to improve your retirement prospects, I often ask clients to think of saving for retirement as similar to saving for their annual summer holiday. So let’s think about that now. If you were planning to have a really nice holiday in an exotic location next year, how would you go about planning it?
Well first of all you would decide where it was you wanted to go. This would probably involve talking to your husband, wife or partner about where they wanted to go and you would then start to look at the cost of going to where you have discussed, find a hotel and flight or a package holiday that was within budget, then try and book it and start saving for it. You would then save for your holiday over the coming months, the saving would of course also include your spending money too. This last point is interesting, ask yourself when you spend more money, whilst at work or when you are on holiday? Most people would say when they are on holiday.
This is very similar in many ways to how you should go about planning your retirement. After all, isn’t your retirement going to be your longest holiday? It should be. Just like going on holiday, your chosen destination could be exciting and everything you envisaged, or leave you disappointed.
It therefore amazes me that when I ask most people what their retirement plans are, I frequently get a frown or a shrug of the shoulders and not much in the way of a description of what their retirement looks like. To be honest, most people take absolutely no time to imagine their future, their own destiny. This is in stark contrast to the reply I get when I ask about where they plan to go on holiday. A warm look appears and you can see the anticipation on the face of the person as they tell me of their plans to visit some far off exotic place. So if retirement is going to be your longest holiday, shouldn’t you start envisioning it now?,
The first step in planning your retirement has got to be deciding on what it is you want from retirement. This is the same as the discussion you have about your holiday; if you don’t know where you are going, how on earth are you going to get there?
As you start to think about retirement you should be able to envision your older self perhaps playing golf, walking, keeping fit, travelling extensively and so on. I doubt most people would see themselves stuck at home watching daytime TV. As you see these ideas forming, I hope you will get an idea of what retirement is going to cost you. And start to inspire yourself to take action.
Once you know what your future looks like, you can start to work out how much money you need to save. I often tell my clients that saving for retirement is simple, it is the function of the following equation. R = £ x T. Therefore if you want a big R, (retirement) you need to make sure that both of the other components are large too. So how much you save, the £, needs to be big, and also the T for time needs to be big too.
Put simply, start saving as soon as you can so that you have enough time to save, to ensure your retirement looks great. At the very least you should aim to save at least 10 per cent of your income in to a retirement savings plan. Once you are saving this amount, you then need to review this each year and check that you are on track.
In addition, I have listed some helpful points that will ensure that you get a retirement that looks more like Roy’s.
Join your company scheme as soon as you get the chance
Don’t listen to the person at work or in the pub who tells you that pensions aren’t worth it.
Do look at what you can do to save money and use the savings to increase your monthly addition to your pension pot.
Don’t rely on the state to look after you.
Make sure you invest in funds that can grow your pension. This adds so much to your future savings and is really important. Many people don’t take enough risk with their savings or are stuck in poor performing funds that need to be replaced.
Check how much your pension costs, many old plans are expensive and should be replaced with newer, cheaper versions.
If you are near retirement ensure that you shop around for the best annuity, or get good advice about the new rules that allow you to use all of your pension to help you have access to your funds more quickly.
Don’t underestimate how long you are going to live. It may be that you need to work for longer in order to fund your retirement. Check out your life expectancy. I frequently ask my clients to visit www.livingto100.com
Mitch Hopkinson is a managing partner of deVere United Kingdom, part of the deVere Group, one of the world’s largest independent advisers of specialist global financial solutions to international, local mass affluent, and high-net-worth clients, through a network of 70 offices across the world and more than 1,000 staff. It has in excess of 80,000 clients and $10bn under advisement.