The Definitive Guide to Retirement Income
When discussing Retirement planning, we find the following questions are often the most common and difficult to answer:i) How much will my Retirement Cost?
ii) How will I afford it?
iii) How do I generate the Retirement income I will need?
For many future retirees, these can be stressful questions which are often put on the long finger and left unanswered for too long. In this article, we set out the means to answer such common queries. Firstly, seek impartial advice. It’s a common mantra in our Industry but so true. For those leaving Occupational Pension Schemes the necessity for individually tailored advice may not be available within the existing framework of services. Ask questions of those who have travelled this road before you.
We need to set Retirement goals. What is your plan for Retirement? Play golf, travel the world, enjoy a cruise with your partner or perhaps, continue to work but without the pressure of having to work? Regardless of which, there is a huge diversity in how we want to spend our Retirement, but in almost all instances, how it’s going to be funded may never have been fully worked through. Most of us have a vague picture in our mind as to what we’d like to do, but no real idea as to how much it will cost and how this will be funded.
1. Avoid running out of money
For most people, this will be the number one goal in Retirement. Nobody wants to have to return to work after they retire because they can’t afford to pay the bills.
2. Maintain or improve lifestyle?
Most people have worked very hard for their Retirement and want to enjoy it. As such, a common goal for many is to maintain, or better yet, to improve their lifestyle during Retirement.
3. Increase Wealth
Some people are able to enjoy the Retirement lifestyle of their choosing with no fear of running out of money. For these fortunate few, the goal is often to grow their wealth even through Retirement, often for legacy purposes. This is an admirable goal, whereby an individual wishes to pass on his/her estate to their kids or grandchildren.
4. Spend every Euro
Not a typical goal amongst the majority, but over the years a number of people have had the goal to ‘spend it all!’ This is a risky proposition as it is very difficult to know how long you will live and therefore how long you will need your Retirement fund to last. Going down this road, you could find yourself out of money sooner than you think. Whilst a common thought few follow through on this sentiment.
How Much Will My Retirement Cost?
Once we’ve figured out what our goals are for your Retirement, we can start to calculate how much it will cost. 4 factors to consider are: non-discretionary spending, discretionary spending, inflation and your life expectancy.
This is the spending you don’t have too much control over. The bills that have to be paid e.g. healthcare,electricity, car running costs, food etc. You’ll likely have a very good idea of what these are already.
Once you’ve taken care of the basic living expenses, you have to account for the discretionary spend. This is spending on items which wouldn’t be considered essential. This is often subjective. Main discretionary items could be:1) Travel. If you’ve been thinking about a dream trip for years, now could be the ideal time to budget for one.
2) Hobbies. Ready to finally work on getting that golf handicap down or taking up Hiking, perhaps working on the garden more? Hobbies always incur costs, some more than others, but they have to be catered for.
3) Luxuries. This is subject to your own budget and also what your definition of luxury is. It could be expensive handbags or luxury cars. You’ll need to factor non-essential purchases into your expenses.
4) Children/Grandchildren. If you wish to help your children to get on the property ladder or help your grandchildren with education costs, you’ll need to factor the cost of this in your plans.
Inflation decreases the purchasing power of our money over time and erodes real savings and investment returns. Many investors fail to realise the impact inflation can have.
Your life expectancy is a major consideration for Retirement planning. Obviously, the longer we live the more Retirement Capital we will need. With modern healthcare and changing lifestyles we are living longer. This is turn means we need to fund to a larger extent than previous generations. The following chart sets out the latest Life expectancy statistics. How long will your Pension “pot” last if you divide your Life expectancy Term by the proposed Income you require? Do we have enough?
United Nations Irish life expectancy from 1950 to 2020.
- The life expectancy for Ireland in 2020 is 82.35 years, a 0.18% increase from 2019.
- The life expectancy for Ireland in 2019 was 82.20 years, a 0.19% increase from 2018.
- The life expectancy for Ireland in 2018 was 82.05 years, a 0.35% increase from 2017.
- The life expectancy for Ireland in 2017 was 81.76 years, a 0.35% increase from 2016.
How Will You Pay for Retirement?
Non-investment incomei) Salary. Will you continue to work part-time in Retirement? If so, you’ll need to estimate how much salary you can expect.
ii) Pension. If your employer offers a pension you need to determine how much this will provide on a monthly basis. Will it increase over time?
iii) Social Welfare. Will you be entitled to the state pension?
iv) Business and property. If you maintain an interest in a business or a property then this could help to provide an income in Retirement. We need to be mindful that this type of income is often subject to market forces and not always guaranteed.
How Can Insight Private Clients Ltd. Help?
Insight Private Clients Ltd. can help with the development of an appropriate portfolio strategy based around your identified goals and cash-flow needs. Such a strategy is preferable pre-Retirement, but often as we leave employment the need for individually tailored advice is of the upmost importance.
Insight Private Clients Ltd, Regulated by the Central Bank of Ireland, offers a level of client service that we believe is unparalleled. Our objective is to ensure you reach your goals and keep you informed. A large part of this is formulating the correct strategy, providing you with a portfolio you are comfortable with and reviewing this regularly.