The Two Biggest Retirement Planning Mistakes

Products: The Least Important Part of Retirement

Products are the most boring part of your retirement planning…

For over 100 years insurance companies and investment houses have been marketing their products to us. When we research our options online, much of the information that comes back from internet searches comes from product providers. This leads many people to start their planning journey with products, comparing one against the other.

In our opinion, this is the wrong place to start.

Products are just tools, tools to help you reach your life goals and objectives. They’re there to help facilitate the lifestyle you want. So before even starting to look at products you must first take the time to clearly define your goals and map out the lifestyle you want.

We’ve experienced client meetings where one partner, usually after some prompting questions, spills their dreams, and for the other partner to say, ‘I never knew that’s what you really wanted’. In this part of the planning process it’s vital to sit down with your partner and really discuss what you want from life, also considering what you want for you children and even grandchildren.

Important questions to ask yourself

Setting out your ideal lifestyle and goals isn’t always easy. It means asking difficult, thought provoking questions to yourself and your partner. Here are some important areas we typically cover with our clients:

• Do you enjoy your job? How long would you ideally like to continue working there?
• Do you see yourself retiring completely or phasing work out gradually?
• When would you ideally like to stop working so hard?
• When you stop working so hard, what would you like to do? What are your passions?
• Do you see yourself retiring in the same location or somewhere else?
• Looking forward, are there any big goals or dreams you’d like to achieve?
• If you were able to, would you like to help anyone in your family out financially?

How Much Do I Need?

Working Out the Money Part….

Once you’ve clearly defined your future life goals, the next step is to estimate how much each of those will cost. For example, they could include any or all of the following:

• Complete family relocation
• Trip of lifetime upon retirement
• Nice family holiday each year
• Holiday home in the sunshine
• Pleasure boat / yacht
• New car every few years
• Paying for a child or grandchild’s house deposit / school fees.

Whatever the goal, there’s likely to be an associated future expense to account for.

Based on your current financial arrangements, the next step is to map out future income sources that can be used to meet those future expenses. These will include money you can draw from your various savings, investments and pensions, naturally less any liabilities that still need to be repaid.

It’s not until you’ve mapped out the above that you can ask yourself:

• How much money is enough money?
• At what point can I start working less and living more?

It’s actually quite common that when we ‘work out the money part’ for new clients it becomes clear that they can afford to live the lifestyle they want now. In this respect, robust financial planning can be literally life changing.

On the other hand, it might be that there’s still some saving to do, but now you have clearly defined goals to work towards you can put in place a plan to get on track and stay on track (this is where the product part comes in, helping to facilitate the journey to financial independence).

As the French writer and pioneering aviator, Antoine de Saint-Exupéry once said:

“A goal without a plan is just a wish.”
Antoine de Saint-Exupéry

Staying on course

Before and during retirement it’s important to review your plan on a regular basis so you stay on course. Like a flight plan that needs constant adjustment to account for changing weather conditions, side winds and headwinds, your financial forecasts and plan needs to be adjusted each year to take account of any financial turbulence and changes in direction.

“A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power.”
Brian Tracy

We use financial planning software to ‘work out the money part’ with clients. It’s a very popular tool because its visual and interactive nature really brings their finances to life, helping them to fully understand the impact of various financial planning decisions and thus plan the best route forward.

Please get in touch by calling 02084327333 if you would like to find out more or download our financial plan brochure.

*Old Mutual Wealth, ‘Retirement Income Uncovered’ (2016).