What would you answer if I asked you how much money you need for the rest of your life (pension freedom)?
It’s a big question and it leads to hundreds, maybe thousands of other big questions.
The biggest being; what do you want to do with the rest of your life? But then there’s the third question, the one that no one wants to think about:
What will the rest of your life throw at you?
If you can answer these three questions accurately, you have your number. Your number is the amount of money you need to be able to live the way you want to live for the rest of your life. If you have your number, and you’re confident that you will never run out of money, you have achieved complete financial independence. And freedom.
Since the introduction of pension freedoms, your number has never been more relevant. Pension freedom puts the rest of your life in your hands. You have the freedom to take all of your pension funds at once (albeit taxed), but you also have the freedom to potentially run out of money. Pension freedoms could as easily have been called pension responsibilities.
Most people don’t take the time to find out their number because it changes year on year. If you were to calculate your number at age 30, and then again at age 40, you’d probably arrive at a completely different result. Your lifestyle could have changed, your aspirations may have changed, and the cost of living will have changed.
Oh, and don’t forget the cost of long term healthcare, which is increasing at a much faster rate than your average rate of inflation. But lifestyle, inflation and unexpected possibilities such as long term care, are exactly the reason why you should try to work out your number.
Remember the three questions from earlier. Let’s take a closer look at them.
1. What do you want to do with the rest of your life?
You know how your life looks now, and you know whether you can afford it or not, but what about retirement? When would you like to retire? When can you afford to retire? That’s a question that can only be answered when you know what you want to do in retirement. I’ve met people who want to pursue a passion that their working life just would not allow. I’ve also met people who just want to live a calmer life and spend more time with their grandchildren.
So that’s what the ideal retirement looks like for you, but there’s another factor to consider:
- What will the rest of your life throw at you?
Of course, the answer to this question is beyond your control. Hopefully, life will throw a lottery win at you! Fingers crossed! However, one scenario that I keep Seeing these days is the increasing need for long term care, the cost of which is often grossly underestimated. To be truly comfortable with your number you need to prepare for this possibility.
So, the big question:
3. How much money do you need for the rest of your life?
There isn’t a definite answer to this, but if you know what you want to do with the rest of your life it is possible to make a rough estimation as to how much that might cost. Then, using the various possible answers for what the rest of your life might throw at you, you can create different scenarios to see how you would fair financially under each circumstance. Finally, you factor in your life expectancy and the rising cost of living.
Once you know what your number is, you can work towards it with clarity. Maybe it will help you to know when you can retire, or, maybe, just maybe, you already have your number… that can be life changing!
If you would like help in finding your number (and, of course, achieving it), one of our advisers will be happy to help.
Financial Advice Including Pension Advice, Bristol
If you would like to speak with one of our Independent Financial Advisors and potentially receive financial advice, please contact us on 0117 923 7652. We are based in Clifton, Bristol but we are happy to service clients from across the UK and we provide free initial meetings at our client’s convenience.
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