Early birds need to take the long view

Those tak­ing early re­tire­ment should plan as­tutely to main­tain their life­style. By Ruth Allen

Sunday Herald - - ADVERTISING FEATURE: IFA -

THERE'S a widely held view that you'll need be­tween half and two-thirds of your fi­nal salary, af­ter tax, to main­tain your life­style in re­tire­ment.

“For some this can be fairly ac­cu­rate,” says Shona Barr of Affin­ity IFA Lim­ited. “But we all have dif­fer­ing goals and dreams, which in­evitably come with vary­ing price tags! Ad­di­tion­ally, it is likely that ex­pen­di­ture will be higher in ear­lier stages of re­tire­ment com­pared to the later years when ex­pen­di­ture nat­u­rally de­creases.

“Some com­mon re­tire­ment dreams in­clude fur­ther learn­ing and per­sonal de­vel­op­ment – pho­tog­ra­phy, art, learn­ing a lan­guage, for ex­am­ple. Oth­ers in­clude travel, in­creased fam­ily time, vol­un­tary work and be­friend­ing.

“Many in­di­vid­u­als over-es­ti­mate the length of time they will have to con­tinue work­ing full time. Of­ten, when we look at peo­ple's fi­nan­cial po­si­tions, we find that early re­tire­ment or par­tial re­tire­ment is vi­able. This is a life-chang­ing mo­ment for many, know­ing that they have fi­nan­cial se­cu­rity and peace of mind for the rest of their lives, with the abil­ity to have fi­nan­cial free­dom well in ad­vance of the tra­di­tional age of re­tire­ment.

“Equipped with this knowl­edge, many then re­tire ear­lier than state pen­sion age, mean­ing that in­come and ex­pen­di­ture changes as re­tire­ment evolves. This brings about a greater need for care­ful plan­ning and on­go­ing ad­vice. The sim­ple point is that some ex­pen­di­ture will go up, some will stay the same, and some will go down or dis­ap­pear al­to­gether.

“The best way to work out what your an­nual ex­pen­di­ture is likely to be is to draw up a bud­get show­ing your po­ten­tial spend un­der var­i­ous head­ings, putting down a re­al­is­tic fig­ure for each cat­e­gory.

“The head­ing ‘Liv­ing Ex­penses' cov­ers all your likely reg­u­lar ex­pen­di­ture and run­ning costs. If you've paid off your mort­gage, then your hous­ing costs will ob­vi­ously be lower. How­ever, you'll still need to bud­get for main­te­nance costs, re­pairs and re­fur­bish­ments. If you're rent­ing, and more and more re­tirees are, you'll clearly need to fac­tor this in.

“Many peo­ple find their util­ity bills rise, as they are likely to be spend­ing more time at home. Heat­ing bills, for in­stance, will be more ex­pen­sive. Travel costs of­ten go down dra­mat­i­cally, as you won't have to bud­get for the ex­pense of get­ting to work. How­ever, you may want to fac­tor in more hol­i­days, mini-breaks, days out and trips to see fam­ily and friends.

“Typ­i­cally, ex­pen­di­ture un­der the head­ing ‘Se­cu­rity Net' would in­clude health and later-life care costs, plus any emer­gency fi­nan­cial help you might need for your­self or your fam­ily.

“Un­der the head­ing ‘Free Time', most peo­ple in­clude the likely cost of en­joy­ing all those things that they never had enough time for when they were work­ing. That can in­clude longer for­eign hol­i­days, week­ends away, eat­ing out and spend­ing money on hob­bies and en­ter­tain­ment.

“Legacy Fund is the amount of money you may want to pass on to your chil­dren and grand­chil­dren dur­ing your life­time. This could in­clude help­ing to pay for their ed­u­ca­tion or a de­posit on a prop­erty.

“Con­sumer mag­a­zine Which? re­cently sur­veyed thou­sands of its re­tired mem­bers to see where their money was be­ing spent. Its re­search showed house­holds spend on av­er­age just un­der £2,200 a month or around £26,000 a year. This ex­pen­di­ture cov­ered all the usual ba­sics and pro­vided for a few lux­u­ries such as Euro­pean hol­i­days, hob­bies and meals out. They es­ti­mated that if long-haul

trips and the pur­chase of a new car ev­ery five years were to be in­cluded, the fig­ure would in­crease to around £39,000.

“A pen­sion is a long-term in­vest­ment. The fund value may fluc­tu­ate and can go down. Your even­tual in­come may de­pend on the size of the fund at re­tire­ment, fu­ture in­ter­est rates and tax leg­is­la­tion. The ad­vice of an IFA is es­sen­tial.” Con­tact Shona Barr, Affin­ity IFA Lim­ited, 01292 435205.

SELFIE AWARE­NESS: Re­tire­ment al­lows you the time to take more hol­i­days, the costs of which have to be fac­tored into your plan­ning.

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