The phrase ‘Retirement Planning’ is almost universally understood to relate to financial planning. But increasingly it is seen that there is more to retirement that just viewing this issue through a financial lens, i.e. planning for retirement.
As a financial adviser, I perhaps naturally focus on the figures – estimated pre-retirement earnings, fund projections, investment growth rates etc. But what sometimes is overlooked is getting the client to also envision what retirement will actually look like.
What do they plan to do in retirement, how they spend all the extra spare time, do they plan to do more travelling, what new interests/hobbies might they take up, will they engage in new learning etc?
When today’s retirees started working, perhaps in the early 1970s, the average life expectancy for retiring at age 65 was some 12 years for males and about 15 for females. Today the average is some 20 years and circa 24 years for females. Not alone can today’s retirees look forward to a much longer retirement, but in most cases, they are far healthier than in previous generations.
It is important that as people approach retirement, they have a good grasp of how their finances will be positioned so that they may look beyond the day of retirement. Some helpful questions to perhaps ask in the planning stage are;
What do you plan to do in retirement, how will you spend your time?
What are your major expenditures?
What new or increased expenditures might arise in retirement, e.g. more travelling?
Do you regularly shop around for better deals on items such as utilities?
Will you perhaps downsize after retirement?
Recently I have been contacted by several people who have received their leaving-service and retirement options directly from the Pension company. They were originally going to choose the option they thought suited them. But upon meeting with me and going through the above questions, they felt more confident that they made the right choice for them and in some cases they made different decisions than initially planned.
One client was entitled to a substantial tax-free cash amount which she nearly missed out on as she did not fully understand the options. Another client who initially thought they were required to wait until age 65 to drawdown their pension benefits, was able to access their pension options.
The better you can envision retirement, the better you will be able to decide on financial planning options (e.g. what tax-free lump sum, whether Annuity or ARF, investment profile/risk rating of investment options etc).