OPINION: Considering a good retirement
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A good friend called this week, eager to announce his impending retirement after giving his employer three months’ notice. I noted, however, that at this juncture, his retirement plans were a tad sketchy, given that they currently extend to playing golf three times a week.
I’ve known Don for almost 40 years. He’s fortunate to be in a position to take early retirement. Most blokes his age (almost 60) face a minimum of a further seven years at the coalface, though many are equally guilty of leaving their similarly quirky version of retirement planning to the last minute.
Yet like many aspects of personal finance, it’s never too early to start drafting ideas for the time when you can put your feet up and relax. Delay only adds to the volume of work involved in producing a realistic plan.
The last sentence is not meant to discourage people in, say, their forties, who may read it and believe they need to spend hours every week focusing on how their financial situation might look three decades from now. On the contrary, a modicum of planning now, likely to involve reference to future ambitions and current career, can not only save time in later life, but it also gives strategies and suggestions time to come to fruition. So where to begin?
Most of us have what could be called a personal balance sheet where salary, ISA savings, perhaps some rental income, the occasional £25 Premium Bond win, plus dividends generated from shares or mutual funds can be recorded.
We’re remarkably similar in our desire to use our portfolio of assets efficiently and effectively. We want to progress our career or develop our business; ensure the children are looked after; develop outside interests and spend more time with loved ones when we finally retire; and, because we cannot take one penny of our wealth with us, most of us also spend time considering how we’re going to pass on our estate when we die.
In the meantime, how we turn a series of haphazardly acquired assets into something more akin to an investment portfolio will depend upon, amongst other things, our future ambitions. Some folks may wish to concentrate on building their pension pot. Others will focus on creating a trust fund for their offspring, while another group may be engaged in an almost constant search for better returns on existing assets.
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Whatever our longer-term ambitions, almost everyone possesses the two essential ingredients to create a more coherent investment portfolio: firstly, a series of financial needs to meet and second, the assets we must deploy as efficiently as possible to satisfy those needs.
Mindful of our longer-term needs and the understandable limitations of our assets, we must start by considering the portfolio’s objectives. This, in effect, is an expression of your investment strategy, a pivotal premise that forms the basis of current and future planning.
This might sound a little extreme and many people may believe it doesn’t apply to them, but it does. Why? Well, in much the same way as you wouldn’t run any form of commercial enterprise without reference to a (regularly tweaked) business plan. If you race towards retirement intent on ‘winging it’, i.e. ignoring the need for a personal plan, you have nothing against which to measure your portfolio’s success or failure.
It pays to consider three particular aspects of any investment portfolio: your time horizon (when would you like to go travelling or settle down and commit to writing that book?). Second, you must consider the amount of risk you’re prepared to take in order to generate the reward you require. Third, attention must also be given to your future income requirements. Do you wish to live like royalty in retirement or are you prepared to sacrifice some luxury to ensure your assets do not expire before you do?
These are just some of the preliminary steps almost everyone should take on the road to comprehensive retirement planning. Calling time on work may seem a long way off, but for those who fancy a little more than three games of golf a week when they do retire – however attractive that may appear to those currently with their noses to the grindstone – there’s enormous merit in taking time to plan for what could be three or more decades of your life.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.