Planning for Retirement – Balancing Wealth, Health and Time

When working with clients who are planning for their retirement, it is important that we take into account three key areas.

Wealth

Having sufficient income is vital to being able to do all of those long-held goals as well as being able to maintain your desired lifestyle in retirement. Fewer people have the benefit of a final salary pension scheme to fall back on and so it is the responsibility of the individual to accumulate sufficient income to fund their lifestyle.

Capital can be accumulated in a variety of tax wrappers, for example, pensions, ISAs, Bonds, a General Investment Account (GIA) or even a Buy-to-Let portfolio.

Saving enough, investing wisely and putting in place a suitable income strategy optimised for tax is incredibly important.

Health

This is an often overlooked aspect of a successful retirement or one that is left too late. We know that we are all living longer and that retirement can last 30 years or more for some people, however, living a long time might not be as much fun if we don’t have good health.

There is a difference between lifespan and healthspan. According to the Office for National Statistics (ONS), the average life expectancy for a man age 60 is 84 years albeit there is a one-in-four chance of them living to age 92, a one-in-ten chance of them living to age 97 and 3.4% chance of them living to age 100.

The ONS also shows that the healthy life expectancy for a man in the UK is age 62.8. This is the amount of a lifetime that is spent in ‘very good’ or ‘good health’ based on how individuals perceive their general health.

An objective in retirement is to the narrow the gap between lifespan and healthspan so that you live healthier for longer thus being able to enjoy retirement and do the things you want to do for longer.

Time

The third factor is time and, more importantly, how are we going to fill it? Retirement is often seen as this great opportunity to do all of the things we have been putting off for years. However, more and more people are finding it difficult to deal with the amount of time they have on their hands if they haven’t made plans to fill it. This is why more and more people are returning to work or retiring several times.

How They Interact

Of course, all three areas interact and this is why they are so important and why we factor them into our financial plans.

I worked with a 60 year old client who was shortly to retire and who enjoyed hiking and wanted to pursue this hobby for as long as possible. It was also something that would keep him healthy long in to later life. One of his big goals, however, was to climb Mount Kilimanjaro as part of an organized trek and then meet up with his family to enjoy a three week safari in Tanzania as part of a holiday of a lifetime.

We factored the cost of the trip into his financial plan and it was easily affordable. He and his wife had other goals they wanted to pursue including further family holidays, a second-hand TVR sports car and helping the children onto the property ladder.

In terms of their finances, we effectively front-end loaded their retirement plan. In other words, taking into account future health and life expectancy, it made sense to spend more money in the early years of retirement to do all the things they wanted to do whilst they were fit and healthy. We also knew that both would receive their full state pensions at 67 so we would have an injection of income at that point.

None of us can know what’s round the corner so we agreed that making memories now and helping the children were key priorities.

Conclusion

I see too many people who focus solely on the wealth aspect and who have an arbitrary figure in mind in terms of how much income they need in retirement. For example, they might say that they need £50,000 a year in retirement. However, for most people, they might need considerably more in the early part of their retirement and considerably less in the latter part of their retirement. There may be some years where they have to dip further into capital. The key is to have a financial plan that is regularly reviewed and can keep you on course to achieve your goals and to maintain your ideal lifestyle.