By: John Kennedy, Director and Regional Head: Claremont, Citadel
A question that’s not asked often enough is whether the way we go about retirement planning is necessarily the best way. All too often, this milestone is overshadowed by the pressure of whether we’ve saved enough to see us through our next life stage: a new stage in which our future is directly correlated to how well we’ve managed to plan in the past.
I believe we often fall into the trap of focusing on the milestone too easily, and not enough on what precedes it or follows retirement. Instead of viewing retirement as a once-off event, I advocate building a financial strategy that allows us to live well through the phases of the “last third” of our lives, and to end well.
What I mean is that it’s within our power to design the life we want, and then to pursue that relentlessly. And a financial strategy is a tool that allows us to put the numbers to those goals, giving us concrete markers to plan ahead and against which to measure progress.
A timeline of life
One of the immediate benefits of creating a long-term financial strategy is that it encourages us to adopt a long-term viewpoint. It’s human nature, after all, to be preoccupied by the present, which often produces poor decisions.
By looking into the distance, it’s easier to ignore the noise created by any short-term events and key to this is understanding the different life and financial stages you progress through in your working and post-work life.
Retirement, for instance, can be split into three distinct phases: the active years, the passive years and those in which you’ll need some form of “support” – from family or other means. So, your financial strategy has to take into account these phases and how your financial commitments change in each.
Focus on the controllables
At the heart of all of this is a clear understanding and command of your personal economy. This means giving thought to your life and what you want to achieve, throughout the seasons. And the best way to do this is to map out your life and your goals, and to put numbers to that.
Focusing on what you can control also allows you to ignore external noise that could distract you.
And when you do plan, I always encourage clients never to forget to dream. And to dream wildly, set goals and enjoy the fruits of their labour. Make wonderful plans for your future, things that you can really look forward to doing and that will make your heart sing. You have worked hard for the chance to do them, so don’t hold back at this stage.
Draw the roadmap
A key consideration in creating a financial strategy is being aware of the timeframe you need to plan for. Current generations, for example, can generally expect to live into their 90s, while younger generations are sure to live into their hundreds.
By planning what you want and how want to live, you can then determine whether your assets will support that vision. We also always encourage clients to share with and involve their loved ones in their vision which makes their plan far more empowering for them and removes many sensitivities later in life.
A top-down look
Above all, your financial strategy allows you to articulate the life you want to live, with clear milestones and benchmarks to guide you on the way.
Central to this exercise is taking stock of expected living and ad hoc expenses through retirement. For instance, the nature of your expenses in the early years of your retirement will be considerably different later on, when medical care expenses are likely to dominate.
In addition to general expenses rising, it’s also advisable to make allowance for irregular and unexpected expenses. Whether you’re replacing a car, or a hip, ad hoc and emergency expenses are sure to crop up and must be planned for.
Expect the unexpected
The value of planning for the unexpected is that it allows you to stay focused on what you can control. It’s the consequences of the “unexpected” that we aim to avoid and by being forearmed makes you less likely to make rash decisions based on any short-term input.
The choice is ours to live well and end well. Building a financial strategy is the best way to set our direction and destination that is supported by a retirement plan.