One of the most common questions clients ask us is “how much do I need to retire?”
According to the most recent government data (2017/18), the average UK retirement income is £304 a week. That’s after you’ve taken away direct taxes and housing costs and works out at around £1,256 net per month.
The likelihood is this figure will mean nothing to you. The nature of an average is that this figure considers millions of people relying solely on the State Pension, and millions more living comfortably on substantial company pensions.
What you must establish is how much is “enough” for you.
Your first step: establish your goals and ambitions
Many senior executives, business owners, and directors work long hours for years. Maybe you consider this your road to a comfortable retirement? Perhaps it’s a labour of love?
Too many of our clients come to us focusing on the acquisition of “more”. They are working relentlessly, often at the detriment of their personal life or their health, under the guise of “it will all be worth it in the end”.
So, going back to the original question, “how much do you need to retire?”
The answer to this question – whilst many people focus on a pounds and pence amount, it can be transformative to think about this question more in terms of time and your goals than your bank account.
- What do you want to do when you retire?
- What are your life goals? What’s on your bucket list?
- What’s your health like? Are you expecting to live a long life?
- How much will it cost you to do what it is that you want?
- What do you want to leave to children and grandchildren?
Switching your focus to time and your goals is the first step to answering the question: “how much do I need to retire?”
As the celebrated author Mark Twain once said: “Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did.”
How much do you need to retire? Why it’s about “enough” not “more”
If you invest money without a specific goal in mind, you will always concentrate on how much your money has grown. It becomes about pursuing “more”.
You may think: what’s the problem with this?
Of course, there’s nothing wrong with increasing your wealth. However, without considering the questions above, you will have no context to determine what “more” means.
Here’s an example.
Rob owns a successful business. He works with us to create a financial plan that focuses on all the things he’d like to do with his retirement. He wants to have a couple of long-haul holidays a year, set up a new business based on a passion, and spend time with his young grandchildren.
We established exactly how much he needs to live the lifestyle he wants when he retires. We produced a lifetime cashflow forecast that considers all the worst-case scenarios – things like high inflation or a period of stock market uncertainty – and discovered that Rob needs to sell his business for £2 million.
If he gets the £2 million that he needs, he can retire comfortably and tick off everything on his bucket list.
He receives an offer for £2.2 million. He sells, retires, and does everything he wants to do with the rest of his life.
Clare also owns a successful business but has never engaged with a planner. She understands that her business will fund her retirement and so she works 60 to 70 hours a week to maximise the sale price of her business.
She doesn’t accept the £2.2 million offer she received for her business. She thinks she can continue to grow her company and achieve a better sale price.
Ten years later Clare is exhausted and can’t find a buyer for her company.
If she had engaged with us, she may have established that £2.2 million was easily enough for her to do everything that she wanted. She could have maintained her lifestyle and spent a decade with her family travelling and enjoying her new-found freedom.
Instead, she focused on “more” rather than on the amount that would be “enough”.
If you can see yourself in this second example, it’s time to find out what the “how much do I need to retire?” figure is for you.
We can help you answer the question: “How much do I need to retire?”
The amount you need to retire will depend on a range of factors, including:
- Your age
- How much you enjoy your work
- When you want to retire
- What you’d like to do when you retire (and how much this will cost)
- Your health.
Enough will be a different amount for everyone, and so focusing on the average UK retirement income won’t necessarily help you.
When you work with us, we’ll start by establishing what your retirement goals are. We can then work out how much is “enough” for you do all the things you want.
One of the ways we so this is by using sophisticated cashflow modelling. We can model a range of scenarios – for example, based on different sales prices for your business, stock market volatility, how early you’d like to retire and so on – and establish exactly how much you need to live the lifestyle you want when you retire.
Seeing a visual representation of what your future looks like can be genuinely life changing. We often find that clients don’t realise they have enough already – or are certainly on course to have enough. It means you can take your next steps confidently, safe in the knowledge that you have the money to do what you want.
Don’t risk the next five, ten, or twenty years in the relentless pursuit of “more”. Establish what’s enough for you and make that your goal.
In the next part of this series, read about how you can calculate how much is “enough” for you.
In the meantime, to find out how we can help you achieve the retirement you desire, please get in touch. Contact us today or call 01372 404417.
