“Count your age by friends, not years. Count your life by smiles, not tears” - John Lennon

“Count your age by friends, not years. Count your life by smiles, not tears” - John Lennon

“How can I retire early, live to an old age and yet have enough wealth to live comfortably?” is one of the most common question asked, often compounded by unforeseen events like pandemics along the way.

The Office for National Statistics says that a child born in the UK now has a 1 in 3 chance of living to 100. 

That's a huge change from someone born in 1951, where life expectancy was 72 for women and 67 for men. The advancements in technology and science are making it possible to for humans to live longer with good health – which is fantastic news. On average, both men and women aged between 50-64 expect to live until 82 years old. Statistics show that, in reality, the actual life expectancy is 90 years of age; resulting in a potential an eight-year pension shortfall. This gap will only grow. Traditional Retirement Planning is unlikely to work in this new era and we need to re-think the overall process.   

For wealth advisers, the implications are also challenging:  

1) Traditional models based on set forms of behaviour and short life spans no longer hold.

2) Age is becoming less and less reliable as an indicator of financial needs 

3) The advent of pension freedoms means that you have more flexibility to plan your personal journey. 

The result? A new wealth management perspective would be advisable.

Dynamic Financial Planning

Financial planning of the future needs to be dynamic with regular review, this provides reassurance that the monthly pension savings will lead to the desired retirement lifestyle.  With technological advancement and independent insights, it is now possible for more effective cashflow forecasting, growth and income projections, so you feel reassured that these decisions were the right ones for you and your family. Being proactive can help to plan for various scenarios at different stages in the life cycle (e.g. gifting to family, tax planning etc).

Behavioural Financing

Surprisingly, there are concerns that financial decision-making in the older population is compromised by the presence of cognitive decline through advanced age. Empirical studies find that older investors are prone to worse choices (Korniotis and Kumar 2011).  Finke, Howe and Huston (2011) show that the average financial literacy scores are lower by 1% for each year over 60. A bigger challenge is that participants who experience this decline are reluctant to admit to a personal loss of control of their financial capability. This stubborn insistence that there is no need to change can lead to hard financial times unless they seek help. These participants would clearly benefit from trustworthy, knowledgeable advice so they can make optimum choices - simplistic, independent empowerment tools are the answer so they can hold meaningful conversations with their advisors.  

The Earlier You Start Planning the Better

The consequences of poor pension planning is significant…a service that allows you to assess the performance and costs associated with your fund investments and be able to ascertain how well your product provider is looking after you becomes essential.

Just looking at costs you may pay, if you compound the impact of small differences over the long term, you can see how money that belongs to you can disappear in front of your eyes to an advisor.

e.g. two scenarios from Investopedia:

· Scenario 1 - Suppose you have an investment account worth £80,000. You hold the investment for 25 years, earning 7% per year and paying 0.50% in annual fees. At the end of the 25-year-period, you’ll have made approximately £380,000.

· Scenario 2 - Now, consider the same scenario, but with one difference; you aren’t paying attention to costs and you hand over 2.0% annually. After 25 years, you’re left with approximately £260,000. That “tiny” 2.0% cost you £120,000.

]These scenarios only illustrate the impact of fees, yet the range of performance differences between investment managers can be even more staggering.   

Life Plan For Early Retirement

Retiring early takes time and incredible discipline. Some advisors use the statistic that you need 25-30 times your estimated annual expenses in savings so you will need to frequently save and invest well. Pay-off the high interest debt, leverage your income and cut expenses.

As you plan for retirement, think about what it looks like. Talk to your partner and friends. Engage with your financial advisor so you have a clear plan to achieve your goals. Reading, learning and understanding more will give you far greater control over your destiny. With the advent of technology, it is far easier now to get all the data you need. And one last point to remember. Falling financial markets can open up as many opportunities as rising prices!