Retirement is a goal we know we all need to think about and plan for. But a commonly made mistake is considering retirement as a one-time-only, static event. It is more of an evolution that indeed starts when someone retires or finishes their career, but from then on, what happens is very much down to the individual and needs planning around accordingly!
As with all transitions, retiring takes time to think about, do, and adapt to. It is basically the last of a long line of life changes; leaving home to go to university, completing education and starting work, building a career, and juggling the demands of a young family, providing for children to go to university, and perhaps helping them onto the housing ladder. If we are lucky, we then have a few years with no financial dependents before we retire, start the wealth decumulation phase of our lives and enjoy the fact that when careers are made, we have the rest of our lives to ourselves.
But preparation is key
Pre-retirement planning is vital for the client and adviser alike. Being able to accurately assess savings and investments in line with inflation, known unknowns, and retirement goals is a must. Income planning is, of course, central to this. aixigo’s Cash Flow Planner is altogether income from various sources, including discretionary income, and considering the tax implications and resulting net income, gives the client a clearer picture of what they will have left in their pot from month to month and, therefore, available to save.
Stress testing and ‘what if’ scenarios are the next step. The client needs to see how their savings align with their future retirement goals in several scenarios – including early retirement. This could be pensions transfers, changes in income, market crashes, buying multiple properties, or disposing of a business. Simulation capabilities that can compare many variables are valuable for advisers. If they can easily explain to the client what their options are in a variety of situations, then that promotes thought and further discussion around how best to plan for a variety of situations. If it might happen, it should be factored in and should be reviewed regularly from all angles; retirement goals and wants, income, and ‘what if’ scenarios - right up until retirement.
After the big day! The honeymoon stage
Once someone has physically retired, there is often the honeymoon stage where retirees get to do everything, they dreamed of but could not do while working. Again, having planned for this in advance and determining whether this will be paid for from income or by drawing down a lump sum should have been discussed well in advance and demonstrated using a planning tool. The honeymoon stage can be as long or as short, as lavish, or not as the retiree wants. What matters is that it is planned for, and then once the next stage begins, the pensions pot and situation are reassessed. Again, being able to crunch the numbers is crucial if there is not to be a misalignment of funds. Advisers need to make sure they have something to show clients that are easy to understand and gives both the adviser and end client a real grip on how the assets relate to the goals, best and worst-case what-if scenario planning, and other events.
The rest of life – the new normal
The final and long-lasting stage of retirement comes as people start settling into retirement and establishing new patterns and ways of living. This all takes time to bed in, and at this point in retirement, it is wise to set some financial goals as regards income level and standard of living.
A lot of this will come back to what was planned for long before retirement, but obviously, circumstances change, market conditions change, and things that were once thought to be a cert might also change. Someone who had planned to travel the world might now be suffering from ill health, and someone determined to spend their retirement playing golf might decide to take up a part-time job to keep busy. The possibilities are endless, and so should the planning outputs to cater to all and every eventuality.
People want to see clear and understandable graphics and calculations.
For the adviser, having a planning tool that can illustrate needs-driven cash flow planning is a way to focus the clients’ thoughts and aims.
Other issues include potentially downsising a house, passing down assets, and making a solid plan for inheritance and succession. A good planning tool will look at all these factors, particularly around estate planning, and be able to demonstrate how things might look based on final position values, cash accounts, loans and liabilities, tax, and real estate. The idea is to see how things look now, at given points in the future, and once the retiree has passed away.
The result is a client that is fully informed along the whole retirement lifecycle and has been helped to align their needs and wants with what is possible. In-depth ‘what if’ planning also makes them aware of how things might look in a given situation and allows them to consider things from every possible angle.
Being able to do this is satisfying for the client in the context of each meeting with the adviser. Still, more importantly, it creates a sticky relationship as the client feels understood and has formed a bond with their adviser where they can freely explore their hopes and dreams and look at how they would cope in an array of adverse situations. They feel comforted knowing that the adviser has catered for every event – assisted by a planning tool that can crunch the numbers but present them in a usable and intuitive format for the adviser to use with the client.
