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Redefining retirement – challenging expectations and traditional approaches

Posted by Anthony Villis, Managing Partner

Much has been written about the demographic trends changing the nature of retirement, but to date there has been less research into how this should impact financial planning in retirement. 

This quest for data led me to Abraham Okusanya’s book ‘Beyond the 4% Rule’, which suggests that traditional concepts for producing income in retirement need to change. We recently interviewed Abraham about his book and financial planning in general.  Watch the full interview here >>>

Abraham’s is a great book. It's packed with practical advice and a research paper which caught my eye, ‘Understanding the Retirement Journey’ (Brancati, Beach, Franklin and Jones) which is a fresh piece of academic research into the lived reality of the ‘new retirement’.

The report uses the Living Costs and Food Survey and English Longitudinal Study of Ageing (yes, I know!) to analyse how the older population are spending their retirement funds. This is the first time a study of this nature has been carried out in such depth and not only is it interesting for me on a client planning level, but the results also have significant implications for public policy and financial products and services.

Challenging rules and assumptions

Okusanya’s book highlights how our traditional view of income planning needs to change as the nature of retirement changes. The report challenges the view of the ‘new retirement’ as a time filled with leisure activities for most people. In fact, Brancati et al. found that, on average, a household headed by someone aged 80+ spends 43% less than one headed by a 50-year-old. Much of this reduction is caused by a decline in spending on non-essential items like holidays, eating out and recreation. While lives may be longer, the idea of a post-retirement spending boom on holidays and leisure activities doesn’t seem to be playing out as many may have assumed. The reduction in spending has also left retirees with rising, not falling, savings!

These points are something I can relate to in my experience of helping people to understand and plan for the life they want to live. To help our clients get the most from their later life, it’s crucial they have a plan that is both flexible in terms of quantum and timing of the income they require to fulfil their plans over the course of their retirement.

Challenging our perceptions

Many of the new clients we work with have a fear that they will run out of money in later life. The good news is that many of those clients have more money than they will need. Our disciplined financial planning process helps create the confidence and peace of mind around this fact.

The question then changes from ‘can I afford this?’ to ‘how can I make the best life possible with the money I have?’

Ultimately it’s about getting comfortable with your financial plan, so you know there won’t be any regrets, opportunities missed, or lifetime goals not fulfilled. A great financial planner has a huge part to play in the journey.

Although it’s easy to identify the amount of money that is being spent each month to sustain a current lifestyle, it can be harder to project into the future. Getting comfortable with a reduction in total wealth while it’s being spent is also a vital factor. This often goes against deep-rooted and long-standing psychological beliefs about saving for the future. Adjusting behaviour in this way is often easier said than done.

As a general rule, people are living longer and therefore need more cash to live on. With this in mind, it’s important to have flexibility as to how and when to draw income once you stop working entirely or reduce your hours.

Exploring your priorities

It’s not always easy to know exactly what you want your life to look like in the future. One of our key roles is to help clients to consider and articulate what matters most to them and build a solid plan around it.

Our conversations are structured around these four client questions:

Am I going to be ok?
Is my family going to be ok?
What do I want to do with my life?
What legacy do I want to leave?

For most people, there are competing priorities, and therefore choices have to be made. The decisions made are very personal.

For instance, what’s the benefit to you personally of buying a retirement home abroad versus taking individual holidays? Is it better to help your grandchildren with their school fees now, or should you leave them an inheritance in the future?

The good news is most people have more choices than they realise.

Continuing the conversation

Many of the people we speak with have plenty of ideas about how they want to spend their later life and are keen to understand if these plans are realistic for them.

I firmly believe that later life planning doesn’t just happen through one conversation – in fact, we actively encourage a continuous dialogue with our clients because we know just how many curve balls life can throw, often altering our plans. As Abraham's book points out, adapting to these changing needs should be a central part of income planning for retirement.

At First Wealth, we want to be with our clients every step of the way. Creating long-lasting, open relationships that let us help them with their journey forward – whatever that may look like.

At First Wealth, we want to be with our clients every step of the way. Creating long-lasting, open relationships that let us help them with their journey forward – whatever that may look like.

Watch Abraham's interview

To help understand and plan for your later life journey, give us a call on 0207 4672700 or e-mail us at hello@firstwealth.co.uk

This article does not constitute advice. Anyone considering any form of financial planning should seek independent financial advice. First Wealth LLP is an appointed representative of Best Practice which is authorised and regulated by the Financial Conduct Authority (FCA). You should note that the FCA does not regulate tax advice. 

Past performance is not indicative of future results. The value of your investment may go down as well as up.

 

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This article does not constitute advice. Anyone considering any form of financial planning should seek independent financial advice. First Wealth LLP is an appointed representative of Best Practice which is authorised and regulated by the Financial Conduct Authority (FCA). You should note that the FCA does not regulate tax advice.

Past performance is not indicative of future results. The value of your investment may go down as well as up.

Posted by Anthony Villis, Managing Partner

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