Eyeball to eyeball with retirement

IT IS like the lights have come on – suddenly baby boomers can see that retirement is for real.

Retirement is no longer something off in the never-never but getting close and, especially for those under-prepared, more than a little scary. Now the realisation has hit many in their 50s and 60s: time no longer stretches off into infinity.

In my experience, when people get this wake-up call at least some will get panicked into playing catch up. As anyone who has played some sport will tell you, playing catch up when you are behind is fraught: you end up taking risks, and the chances of those risky bets paying get lower and lower.

In sport it might be throwing the ball around a bit more in the hope of something coming off; in finance it is usually taking more investment risk. With both, it is highly likely that you will end up in an even worse place than you started.

Playing catch up at 50 with your retirement plans is likely to lead to a deepening hole, not a sudden improvement. If you are in your 50s with significant debt and insignificant savings it is time to stop what you have been doing, think and change the plan.

Right from the start, acknowledge that the things that you have been doing with your money and which have got you to where you are now will probably not get you to a different or better place. Things will have to change.

First, review what you have been doing and try to analyse where you have been going wrong. Appraise where you are at the moment: look at your assets, you liabilities, income and expenditure. These numbers represent your starting point and you need to be brutally honest about them. Your problem may be overspending or it could be that you have had your money in the wrong places – perhaps underperforming investments or a struggling business.

If so, be ruthless: get rid of anything that is not doing well.

Taking control of your spending will be critical and you will need to go through expenditure line by line. Getting a greater surplus may not be as hard as you think: after all, that major cost centre, which is the children, should be gone and the coming years ought to be your best earning time.

Most importantly, consider what you have been doing and the mistakes you have made. Challenge your old assumptions, attitudes and habits – they have not worked so whatever deeply held beliefs you have about finance are quite possibly wrong.

Second, set a clear, achievable financial goal. If your finances are not as they should be and sufficient money for a good retirement seems a long way off, work out what you could reasonably expect to have by the time that you hope to retire.

This goal may be for less money than you would want to take into retirement or it may mean that you have to push retirement out several years while you work longer to build up more wealth. Whichever, you may need to rethink your retirement – when you will have it and what you will be able to do when it happens.

However, a goal for retirement (even a more modest one than you would like) gives direction and is likely to mean that you have more than you would if you carried on as you are.

Third, understand that as a minimum, you should try to go into retirement debt-free. Target the debt that you have and apply all the income that you can afford to its repayment, this will almost certainly mean spending less so that you can repay debt faster. It may also mean downsizing the house or selling some superfluous lifestyle assets.

It is not too late. The approach of retirement is not a time to panic, but it is a time to get tough and hardnosed as you change strategy, sell assets, cut expenditure and so forth.

Even though time may no longer be on your side, there are things that can be done to give you a better life and this is certainly a case where every little bit extra helps. Now is the time to act intelligently, even when that means taking difficult decisions and doing things quite differently from what you have done previously. Martin Hawes is an authorised financial adviser and his disclosure statement is available free of charge at martinhawes.com. This article is of a general nature and no substitute for personalised financial advice.