Planning Your Retirement Income
Planning for income in retirement often requires a different approach to other life stages, as the shift from working to not working brings in a series of new considerations.
In this video we will help you with some of the main factors and key things you may want to start thinking about. We will also outline ideas which can help with effective planning.
The biggest challenge to meet is one related to longevity. Retirement comes with a big unknown – generally no-one knows how long it will last.
Longevity basically describes living a long time.
This means income may need to be generated for many decades.
And, naturally, the longer one stretches the view the greater the unknowns will be.
Unknowns in retirement include what level of inflation there will be in the cost of living, the wider economic conditions and whether health issues will come into play.
All these unknowns, and there will be others as well, get more uncertain the longer one looks into the future – therefore longevity is the biggest risk any retiree faces.
This means that income planning must factor in the longevity risk and, despite the fact this is planning for retirement income, the planning should be with a long-term view applied to it.
"If you look carefully, almost all Old Money secrets can be traced to a single source: a longer-term outlook." - Bill Bonner
This is highlighted by looking at some basic longevity statistics, for example:
A 65-year-old man has a 1 in 4 chance of reaching age 93
And a 1 in 10 chance of reaching age 97
A 65-year-old woman has a 1 in 4 chance of reaching age 95
And a 1 in 10 chance of reaching age 99
(Assumes average health)
Source: Office National Statistics 2019
Amongst all the various possible outcomes it is unlikely you will know whether you will be the 1 in 10 or not, so you must assume – in terms of planning your finances – that you will be.
Predicting your expenditure over such a long period is not easy for two main reasons. One is if you need to cover healthcare costs.
According to leading charities, typical care costs in the UK average around £600 a week for a care home place and over £800 a week for a place in a nursing home
The other is the threat of inflation.
Just look at how much the true value of income can drop at different rates of inflation over 20 years:
Income at start £20,000
Inflation per year True value of £20,000 Income after 20 years
2% £13,459
4% £9,128
6% £6,236
Therefore, retirement income planning is often considered the most important financial planning most people will ever undertake.
So, how do you tackle this?
The first thing to say is that any given situation is going to need to be worked up on your individual circumstances. Two neighbours may look like they have similar positions, but because of family, health, and the type of pension each has, their prospects and risks could be very different.
This means they may have to plan differently.
Secondly, although we talk about retirement income planning, this is really an exercise in planning for retirement expenditure. The risk most people face is not having enough to cover expenses at some point in retirement.
This is more than a difference in language, because it is forecasting long-term expenditure requirements which will generally dictate the planning.
Any plans must aim to assess the expenditure across the decades and then overlay this with the risks, such as inflation and care costs, which could radically alter the expenditure required.
Expenditure assessments are not easy over long periods, but they can be done and provided regular reviews are made throughout retirement, plans can be adjusted as you progress.
Many people make the mistake of looking at their expenditure needs at the point of retirement and then structuring their plans, for example how they invest their capital, to meet this level at that time. This short-term picture can lead to very different decisions than looking at the longer-term picture.
Your retirement planning, led by looking at expenditure, can then build in other requirements and factors, such as your legacy wishes, retirement goals and tax position.
All this mixed together will lead to decisions about how and when you take your pensions, how you invest, how you structure for tax efficiency and how you manage the risks you face.
There are many aspects out of your control, but your decision making, and your planning are completely within your control.
This is a skilled exercise and one we can help with, we have the experience and expertise to go through this with you at every stage and provide you with the advice you will need.
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I have been a client of Alan Moran's for 12 years and during that time he has given me valuable advice on all aspects of finance. He always explains everything thoroughly and has been particularly supportive during periods of crisis in my life. He helped my late husband and I when his business went into liquidation and was even more valuable when my husband died, pointing me in the right direction with my finances and getting me to invest my money sensibly and with the just rewards that I am now experiencing. I regard Alan not only as my Financial Adviser, but also as my friend, and would, and in fact have, recommended Interface Financial Planning Services to anyone needing a Financial Adviser they can trust.
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We first met Alan in 1999; we both wished that we
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