Thoughts for the holiday season: Will your pension fund your dream retirement?
While many people can put a figure on the pension pot they’re aiming for, fewer can describe the life it’s meant to pay for. A holiday gives you the headspace to work that out. Here are five questions to ask yourself before you return home.
On holiday, typically around day three, our perspective starts to shift. Work concerns subside, everyday domestic chores fade into the background and for the first time in months you have the headroom to think about longer term plans with clarity.
That’s when the big questions tend to creep in, like what’s my money for? What are my priorities? Could I have more holidays, and sooner? Could we afford to live somewhere like this?
When they are well directed such “sun lounger” musings can serve to put you on a path to manage your pension and wealth more effectively.
How to fund your bucket list and life at home sweet home
Realistically though, most of us find it easier to draw up a retirement bucket list than imagine what we’ll be doing at home on a wet Wednesday in February. Practically speaking, retirement tends to be partly about ticking off the bucket list but mostly it’s about living an ordinary life at home. You need a costed retirement plan that covers both your dreams and the mundane.
The other quirk of human behaviour is that after decades of saving to provide a secure financial future, plenty of people can’t bring themselves to spend it. Added to which, if you are married or have a partner it’s unlikely that you’ll both stop work at the same time. And if you want to leave as much as you can to the people you love, that’ll be a massive influence on how you think about retirement.
To help maximise the value of holiday thinking time we’ve pulled together a list of useful questions to reflect on yourself and to discuss with loved ones.
5 questions to ensure you can afford the retirement you want
1. What does an ordinary week in retirement look like?
Describe a wet Wednesday in February, not the trip of a lifetime. Where are you living, who are you seeing, what are you doing with the day now nobody’s expecting you to be anywhere? The ordinary week is what your money mostly has to pay for, and picturing it is the quickest way to test whether the number you have in mind is the right one.
2. What size pension will you need to enjoy the retirement you’d like?
That will depend on the life you’ve just described, not on an average. So start by finding out what you’d get if you carried on exactly as you are, then hold it up against that life. If there’s a gap, how much more should you be putting in, and what does waiting cost you? Run a projection on making an extra contribution now against the same one in six months, and the difference is usually bigger than people expect.
3. Will you and your partner retire at the same time?
Usually not. One of you may stop years before the other, and that lag means your retirement plan has to work for each of you on your own and for both of you together. Have that conversation now while you have the time to create a plan that accommodates both.
4. Do you feel easy or queasy about spending money in retirement?
After a lifetime of working hard to build your wealth and being disciplined about saving it can be hard to give yourself permission to spend it. This is where cashflow modelling can help. Use an expert adviser, who cares about getting the best outcome for you but has no emotional stake in your money, to work out what you can safely spend without running out of money. It’s nearly always more than you’d guess. What the conversation gives you is permission to let go and enjoy the fruits of your labour in way that is financially prudent.
5. What would you like to leave those you love?
From April 2027, pensions will form part inheritance tax (IHT) calculations. This is a major development affecting estate planning, so if passing on as much as possible matters to you then inheritance tax should feature in your retirement plan from the start rather than bolted on at the end. It changes what you do now, not just what happens later.
Get in touch
As expert wealth management advisers we can help provide answers to any questions you bring home from holiday. Book a meeting now, we’d love to help turn your holiday dreams into retirement reality.