One of the biggest challenges faced by any individual seeking to effectively manage their finances is to accurately apply solutions to their situations.
This may sound innocuous or peripheral, but as Financial Planners we would suggest otherwise.
It is possibly the most important factor.
For example, how do you define “risk” in your investing?
How do you define your “lifestyle” and “lifestyle requirements”?
How do you define your “objectives” and “goals”?
All of these are aspects of Financial Planning which require definition. If your goal is to retire one day with enough money to “be comfortable” we would argue you have not defined your goal.
If you say you are “risk adverse” in your approach to investing, you have not defined your risk.
You have expressed some form of thought or desire without applying detail, and as they say, the devil is in the detail!
In this article we are looking at this point but solely in the context of Retirement and aiming to help those of you ‘Planning your Retirement’ – whatever stage you are at today – with a way of approaching this, that may be slightly different to anything you have read before.
It is about definition and related thought processes.
If we say to you “elephant” something will come into your head (an image of an elephant) and this will be consistent amongst pretty much everyone everywhere, we will all picture the same thing when we hear or see that word. Even a phrase has consistency “the spanner in the works” for example, there will not be any real variance in how this is imagined in most people’s minds.
Likewise if we say to you “five pounds” you can picture a five pound note, five one pound coins or something (e.g. a Burger and Chips) that five pounds might buy.
If you say to someone “Retirement” the imagery will be less clear, possibly varying from person to person quite significantly. It is much more difficult to align a clear cut picture to this word.
That is problem number one.
Problem number two is slightly different, but still relates to the same theme. As much as it is possible to define the word Retirement to a picture in the mind – it normally creates a picture which has a point (almost like a stake in the ground) creating an impression that Retirement is something which happens, i.e. starts at a moment in time.
So when we think about our Retirement we are applying a vague picture of something that will happen – or start – at a future point.
We have argued in previous articles that the so-called Retirement picture is changing rapidly. Actually we have been guilty ourselves in making this argument of using words in an over-simplistic fashion. It is not that the nature of Retirement – on its own – is changing, but that the overall fabric of the world around us is changing, which has profound effects on everything, including Retirement.
Therefore future ‘Retirement’ patterns and experiences will be different to those who ‘Retire’ in the future than it was for those who ‘Retired’ in the past.
Based on these factors – the danger for those of you working out what to do for the best with your Finances is that the lack of proper definition could create problems.
In Financial Planning terms, those people who have ‘successfully retired’ are historically those who have had the best pensions, most notably high guaranteed final-salary type pensions. Or they have been people who have had enough money, outside of pensions, to be able to meet all their expenditure for the rest of their lives. Either way, wherever the Wealth has come from, successful Retirees have had enough money for the rest of their lives.
The definition – from a Financial Planning viewpoint – of Retirement Planning is not to assess and work out how much money you need to Retire, it is working out how much Wealth you need to live the life you want, at all future junctures, and to never run of money. Come what may.
At Penguin we work around our three prongs “Plan, Perform and Protect”. The Planning is always about seeking out methods to ensure you have enough money to live the life you want, allied to this is a high respect for making sure you have the protection you need so that the unexpected does not derail this plan.
When it comes to Planning for Retirement we want to help our clients understand that the modern form of Retirement, is unlikely to start on one day, could cover a very long period, and could feature an economy and environment which is very different to today’s and could be full of unexpected aspects.
Therefore we think the task is to largely abandon the use of the word Retirement in the process of defining what needs to be done today and to focus instead on defining a series of goals which the Financial Plan can then be targeted to meet. In this respect the definition of the Retirement goal is exactly the same as at any other point in time – “to ensure you have the money you need to live the rest of your life in the way you want to lead it”. As there is no point in time when you will want to have an insufficient sum.
“To ensure you have the money you need to live the rest of your life in the way you want to lead it” is not the definition most people apply or the image they create when they think of or hear the word Retirement.
If you can then define that objective quoted above and construct a plan accordingly – Retirement (whatever that might be) will take care of itself.
Whether you are approaching Retirement or already Retired, we can help you put a robust Financial Plan in place to make sure that you don’t run out of money. If you’d like to find out how, get in touch with us to book a no-obligation initial discovery meeting – at our expense! Call 02920 450 143 or email firstname.lastname@example.org.