How to maintain your lifestyle in retirement

August 8, 2016

A guest blog by Cranwell James Financial Planning

Selling your business could mean you’re well on the way to your retirement, but have you thought about how your lifestyle might look and feel like once you retire?

A question regularly asked by our clients is ‘What would your ideal lifestyle look and feel like?’. To achieve your desired lifestyle it’s crucial to have clear goals as this brings clarity to financial decisions that you may be advised to make.

For example “why am I making a £30,000 year end pension contribution?” It’s not just to save tax or see numbers on an investment statement go up! Having a large amount of assets is not the goal in itself, it’s what you can do with those assets that matters.

For the majority people retiring, their main objective is to maintain their chosen lifestyle in retirement, they have worked hard to enjoy a lifestyle they love and do not want to lose it once they give up their business.

‘What’s your number?’ is a concept of understanding; the number could be described as the amount of money that you need to accumulate to then be able to live the life you want without fear of ever running out of money. It’s a concept developed by  Lee Eisenberg in his book ‘The Number: What Do You Need for the Rest of Your Life and What Will It Cost? ’, using this concept you can set goals and prepare yourself for life after retirement. If you don’t know what you’re heading for, you’ll never know when you’ve got there!

Our experience shows that increasingly, what clients want, more than anything, is an answer to the big questions.

Questions like:

  • How much do I need to earn, save or sell my business for to give me what I want out of life?”
  • When, precisely, can I afford to stop doing the things that have become a drag…and start doing the things I really enjoy?”
  • What do I have to do to ensure I NEVER run out of money?”
  • Exactly what level of investment return do I need to achieve my objectives?

And possibly the biggest question of all…

“How much is enough?”

Build a realistic model

An effective cash flow forecasting system allows you to explore these questions more deeply and create a plan (a model) of how your financial future will look. It allows you to consider how the events that life has a habit of throwing up, will affect your financial plans. Testing different scenarios will help you prioritise your needs and make better money management decisions.

Importantly, forecasting acts as an early warning system and helps you understand the “truth about money”.

As an example, the chart below illustrates the position of someone selling their business at age 63 for £300,000 and having an income requirement of £30,000 per annum, with only a small State Pension of £5,000 per annum from age 65. The figures assume modest investment growth of 3% and take into account the effect of inflation.

retirement graph 2

How long until it all runs out?

The chart illustrates that the cash will run out by age 76 and the client will then have to survive on State Pension alone.

Whilst this is grim reading for some people, it does at least identify the need to make decisions that could change this picture and with alternative planning, improve the position significantly.

Take advice

If you are considering selling your business and retiring, working with a professional financial planner at this crucial time will give you greater understanding of your situation and ways to potentially improve it.

If you would like to speak to us, please feel free to call James O’Reilly or Terry Larking of Cranwell James Financial planning on 0161 247 8651