Happily Retired
There are some people who think of retirement as a destination. The reality is that it should be seen as a launch pad. You will have laboured all your life to put yourself in a position of financial independence, often having to look after a number of people who will have been dependent on you along the way. This is the time of your life when you should be doing what you want to do. For some people this means foreign travel, spoiling grandchildren or devoting more time to that hobby that was neglected because of the time pressures of your working life.
Having earned this freedom however it is vital that you make sure that you protect it. It is essential that you have a properly co-ordinated and managed financial plan. Ask yourself these questions.
- At what age will my money run out on my current expenditure?
- How much does my money need to grow by to see me through the rest of my life?
- What is the level of risk associated with my current investments?
- Will I become a financial burden on my family?
- How much of my estate will go to the tax man?
- If my health fails will I be able to choose how and where I am cared for?
- Are there any opportunities that I am missing out on?
If you cannot answer these with a fair degree of certainty then you need a financial plan.
Below is an example model showing someone who was on target to run out of money but slight tweaking enables the protection of their position. We can show you any number of models that show clients in a vulnerable position because they don’t have enough or their portfolio has too much risk. Most of our clients however are either just about on target or they will have too much, which presents other opportunities to them.
Unfortunately the reality for most people is that they simply do not know. This uncertainty causes anxiety and stress. Let us build your plan and hopefully provide you with the most valuable thing in the world – peace of mind.
Example Model
- Client Details
- Incomings/Outgoings
- Planning Forecast
The details of the client and the basic assumptions being used for inflation, interest, and model end date.
| Title | Dr. |
| Name | Happily Retired |
| Date of Birth | 10/02/1940 |
| Retirement Age | 65 |
| Current Age | 64 |
| Assumptions | |
| Inflation Rate | 2.5% |
| Growth Rate | 4% |
| Model End Date | February 2040 |
The table gives a brief description of each event e.g. retirement expenditure. It then shows the cumulative total of each event that will be received between now and the model end date. Some people will find it surprising just how large these figures will be and begin to realise the need for planning. The table then goes on to show the year by year breakdown and totals.
It is interesting to note that the client wants an income of £2,500 per month increasing by inflation to protect the value in real terms. A significant part of the income however, is a level annuity that will not increase. This means that more and more money will be taken from the Investment Portfolio to fund the gap. The results of this are shown in the Planning Forecast.
| Incomings | Outgoings | |||||
| Description | Occupational Pension | Annuity | State Pension | Investment portfolio | Annual Totals | Retirement Expenditure |
| Cumulative Total | 548195.00 | 215500 | 178163.37 | 245000 | -1713109.37 | |
| 2004 | 7200 | 4500 | 2340 | 245000 | 259040 | -22500 |
| 2005 | 9780 | 6000 | 3178.5 | 18958.5 | -30562.5 | |
| 2006 | 10024.5 | 6000 | 3257.96 | 19282.46 | -31326.56 | |
| 2007 | 10275.11 | 6000 | 3339.41 | 19614.52 | -32109.73 | |
| 2008 | 10531.99 | 6000 | 3422.90 | 19954.89 | -32912.47 | |
| 2009 | 10795.29 | 6000 | 3508.47 | 20303.76 | -33735.28 | |
| 2010 | 11065.17 | 6000 | 3596.18 | 20661.35 | -34578.66 | |
| 2011 | 11341.80 | 6000 | 3686.09 | 21027.89 | -35443.13 | |
| 2012 | 11625.35 | 6000 | 3778.24 | 21403.58 | -36329.21 | |
| 2013 | 11915.98 | 6000 | 3872.69 | 21788.67 | -37237.44 | |
| 2014 | 12213.88 | 6000 | 3969.51 | 22183.39 | -38168.37 | |
| 2015 | 12519.23 | 6000 | 4068.75 | 22587.98 | -39122.58 | |
| 2016 | 12832.21 | 6000 | 4170.47 | 23002.67 | -40100.65 | |
| 2017 | 13153.01 | 6000 | 4274.73 | 23427.74 | -41103.16 | |
| 2018 | 13481.84 | 6000 | 4381.60 | 23863.44 | -42130.74 | |
| 2019 | 13818.88 | 6000 | 4491.14 | 24310.02 | -43184.01 | |
| 2020 | 14164.36 | 6000 | 4603.42 | 24767.77 | -44263.61 | |
| 2021 | 14518.46 | 6000 | 4718.50 | 25236.97 | -45370.20 | |
| 2022 | 14881.43 | 6000 | 4836.46 | 25717.89 | -46504.46 | |
| 2023 | 15253.46 | 6000 | 4957.38 | 26210.84 | -47667.07 | |
| 2024 | 15634.80 | 6000 | 5081.31 | 26716.11 | -48858.75 | |
| 2025 | 16025.67 | 6000 | 5208.34 | 27234.01 | -50080.21 | |
| 2026 | 16426.31 | 6000 | 5338.55 | 27764.86 | -51332.22 | |
| 2027 | 16836.97 | 6000 | 5472.01 | 28308.98 | -52615.53 | |
| 2028 | 17257.89 | 6000 | 5608.82 | 28866.71 | -53930.91 | |
| 2029 | 17689.34 | 6000 | 5749.04 | 29438.38 | -55279.19 | |
| 2030 | 18131.57 | 6000 | 5892.76 | 30024.33 | -56661.17 | |
| 2031 | 18584.86 | 6000 | 6040.08 | 30624.94 | -58077.70 | |
| 2032 | 19049.48 | 6000 | 6191.08 | 31240.57 | -59529.64 | |
| 2033 | 19525.72 | 6000 | 6345.86 | 31871.58 | -61017.88 | |
| 2034 | 20013.86 | 6000 | 6504.51 | 32518.37 | -62543.33 | |
| 2035 | 20514.21 | 6000 | 6667.12 | 33181.33 | -64106.91 | |
| 2036 | 21027.07 | 6000 | 6833.80 | 33860.86 | -65709.58 | |
| 2037 | 21552.74 | 6000 | 7004.64 | 34557.38 | -67352.32 | |
| 2038 | 22091.56 | 6000 | 7179.76 | 35271.32 | -69036.13 | |
| 2039 | 22643.85 | 6000 | 7359.25 | 36003.10 | -70762.03 | |
| 2040 | 3797.13 | 1000 | 1234.07 | 6031.20 | -11866.03 | |
The spreadsheet enables us to work with the client to identify these vulnerabilities and work out why they occur. The view here shows that the difference between the client's expenditure (outflow) and their income (inflow) is around £12000.00 in the early years and this is more than the growth they are receiving on their investment portfolio. This means the value of their portfolio will go into decline as you can see by looking at the starting fund column.
As the spreasheet progresses the gap between the inflow and the ouflow widens because not all of the income making up the inflow increases. This increases the rate at which the investment portfolio is depleted.
The current strategy that the client is deploying shows them on target to run out of money at age 86.
This model gives us, as planners, a context within which to design a strategy for the client and more importantly gives them a context for making decisions.
The options for this client are as follows:
- To continue with their current strategy and see their income almost halve when the investment portfolio runs out at age 86.
- To try and achieve a net growth rate of just under 8%, which would be a very risky strategy and could result in a considerable worsening of the client's position.
- To reduce their current expenditure by £400 per month.
The reality is that it is likely to be a combination of these options depending upon the client's view about leaving assests to their children.
| Year | Starting Fund | Incomings | Outgoings | Growth | End Fund | Today's Value |
| 2004 (64) | 0.00 | 259,040.00 | -22,500.00 | 6,495.09 | 243,035.09 | 243,035.09 |
| 2005 (65) | 243,035.09 | 18,958.50 | -30,562.50 | 9,257.24 | 240,688.34 | 234,817.89 |
| 2006 (66) | 240,688.34 | 19,282.46 | -31,326.56 | 9,145.77 | 237,790.01 | 226,331.95 |
| 2007 (67) | 237,790.01 | 19,614.52 | -32,109.73 | 9,011.79 | 234,306.60 | 217,576.97 |
| 2008 (68) | 234,306.60 | 19,954.89 | -32,912.47 | 8,853.96 | 230,202.97 | 208,552.53 |
| 2009 (69) | 230,202.97 | 20,303.76 | -33,735.28 | 8,670.86 | 225,442.31 | 199,258.15 |
| 2010 (70) | 225,442.31 | 20,661.35 | -34,578.66 | 8,461.00 | 219,986.00 | 189,693.24 |
| 2011 (71) | 219,986.00 | 21,027.89 | -35,443.13 | 8,222.83 | 213,793.59 | 179,857.11 |
| 2012 (72) | 213,793.59 | 21,403.58 | -36,329.21 | 7,954.72 | 206,822.68 | 169,749.01 |
| 2013 (73) | 206,822.68 | 21,788.67 | -37,237.44 | 7,654.96 | 199,028.87 | 159,368.06 |
| 2014 (74) | 199,028.87 | 22,183.39 | -38,168.37 | 7,321.76 | 190,365.65 | 148,713.34 |
| 2015 (75) | 190,365.65 | 22,587.98 | -39,122.58 | 6,953.24 | 180,784.28 | 137,783.79 |
| 2016 (76) | 180,784.28 | 23,002.67 | -40,100.65 | 6,547.45 | 170,233.76 | 126,578.31 |
| 2017 (77) | 170,233.76 | 23,427.74 | -41,103.16 | 6,102.33 | 158,660.67 | 115,095.68 |
| 2018 (78) | 158,660.67 | 23,863.44 | -42,130.74 | 5,615.73 | 146,009.09 | 103,334.61 |
| 2019 (79) | 146,009.09 | 24,310.02 | -43,184.01 | 5,085.40 | 132,220.51 | 91,293.71 |
| 2020 (80) | 132,220.51 | 24,767.77 | -44,263.61 | 4,508.99 | 117,233.65 | 78,971.51 |
| 2021 (81) | 117,233.65 | 25,236.97 | -45,370.20 | 3,884.02 | 100,984.43 | 66,366.47 |
| 2022 (82) | 100,984.43 | 25,717.89 | -46,504.46 | 3,207.91 | 83,405.78 | 53,476.94 |
| 2023 (83) | 83,405.78 | 26,210.84 | -47,667.07 | 2,477.98 | 64,427.53 | 40,301.20 |
| 2024 (84) | 64,427.53 | 26,716.11 | -48,858.75 | 1,691.40 | 43,976.29 | 26,837.45 |
| 2025 (85) | 43,976.29 | 27,234.01 | -50,080.21 | 845.20 | 21,975.29 | 13,083.78 |
| 2026 (86) | 21,975.29 | 27,764.86 | -51,332.22 | -63.68 | -1,655.76 | -961.77 |
| 2027 (87) | -1,655.76 | 28,308.98 | -52,615.53 | -1,038.49 | -27,000.79 | -15,301.27 |
| 2028 (88) | -27,000.79 | 28,866.71 | -53,930.91 | -2,082.60 | -54,147.60 | -29,936.87 |
| 2029 (89) | -54,147.60 | 29,438.38 | -55,279.19 | -3,199.54 | -83,187.94 | -44,870.79 |
| 2030 (90) | -83,187.94 | 30,024.33 | -56,661.17 | -4,392.99 | -114,217.77 | -60,105.36 |
| 2031 (91) | -114,217.77 | 30,624.94 | -58,077.70 | -5,666.82 | -147,337.34 | -75,642.95 |
| 2032 (92) | -147,337.34 | 31,240.57 | -59,529.64 | -7,025.06 | -182,651.47 | -91,486.06 |
| 2033 (93) | -182,651.47 | 31,871.58 | -61,017.88 | -8,471.91 | -220,269.68 | -107,637.26 |
| 2034 (94) | -220,269.68 | 32,518.37 | -62,543.33 | -10,011.79 | -260,306.42 | -124,099.18 |
| 2035 (95) | -260,306.42 | 33,181.33 | -64,106.91 | -11,649.28 | -302,881.28 | -140,874.57 |
| 2036 (96) | -302,881.28 | 33,860.86 | -65,709.58 | -13,389.20 | -348,119.20 | -157,966.24 |
| 2037 (97) | -348,119.20 | 34,557.38 | -67,352.32 | -15,236.57 | -396,150.70 | -175,377.09 |
| 2038 (98) | -396,150.70 | 35,271.32 | -69,036.13 | -17,196.62 | -447,112.13 | -193,110.12 |
| 2039 (99) | -447,112.13 | 36,003.10 | -70,762.03 | -19,274.84 | -501,145.90 | -211,168.38 |
| 2040 (100) | -501,145.90 | 6,031.20 | -11,866.03 | -20,279.23 | -527,259.97 | -216,753.26 |
