The government, pension providers and financial advisers such as us expend quite a bit of time and energy encouraging individuals to take control of their retirement planning. After all, we’re all becoming more aware of the folly of relying on the state if we want to maintain even a half decent lifestyle in retirement.
But how much control can you actually take of your own retirement planning? We recently came across a really interesting piece of research from JP Morgan (Guide to Retirement – 2016 Edition) in USA that explored this topic, and we are now adding our own thoughts to this.
There are some factors over which you have full control, some for which you can influence but don’t have full control and finally there are some factors over which you have no control at all. We’ll examine these in turn and how we can help you with each of the factors.
You’ve full control
While your earnings potential may limit your financial resources available for retirement purposes, you retain control over how your money is allocated. Do you live for today and worry about tomorrow when it comes around? Or do you live frugally today with the view to being able to kick back early and in style in later years? Of course most of us are somewhere in the middle, but the balance of how much to spend and how must to save is our own to decide.
Similarly we each have control of how our money is invested. Do we lock it down in a savings mechanism that is 100% guaranteed but that will not achieve any meaningful growth, or are we willing to take some risk with the aim of greater reward over the long-term? The decision is yours.
Of course we will help you in both of these areas. We’ll guide you towards getting the balance right between living today while planning for tomorrow, and also getting the right risk adjusted portfolio in place to enable you to achieve your goals.
You have partial control
Then there are factors that you can influence, but where you don’t have full control. The first is in relation to your earnings power. Yes you can work longer hours and harder, increase your qualifications and work until later in life. All of these are likely to increase your lifetime earnings and capacity to save. But you don’t have full control over these. Some companies unfortunately close down, many have standard retirement ages and sometimes the value of qualifications is not fully rewarded. Some will assist you in your retirement planning, some won’t. So you can influence the level and duration of your retirement savings, but without full control.
Likewise you can influence how long you will spend in retirement. Live life as a hell raiser today and the chances are you won’t last very long! But if you eat well and look after yourself, you are increasing your chances of a long retirement. But of course none of us have full control over our health. The increasing longevity that we are seeing is a huge challenge for retirement planning. It is accepted wisdom that the first person to live to be 150 years old has been born – that person will need some retirement fund to see them through retirement!
We can help you clarify your own situation with regards to these factors. We’ll help you to look at your employee benefits and make the best financial decisions around these. We’ll also help you to understand the impact your potential longevity will have on your retirement plan.
You’ve no control
And then there are factors over which you have no control. Governments set policy; they decide the levels of tax relief available for retirement planning, the size of funds allowed and other important factors. You’ve no control over these (outside of your vote!) and must just plan within these constraints.
And then there are investment markets. Sometimes these change with alarming speed and with no warning – just look at the short-term turmoil that Brext caused! Again you have no control over these macro factors.
But on the other hand we can help a lot here. We can make sure you are maximising the opportunities available in our pensions system today and also as policy changes, that your approach to retirement planning remains the best way. We also don’t have any control over markets. But what we can do is make sure that you have a risk appropriate, diversified retirement portfolio in place.
At the end of the day, you have some control over your future. With our help you can give yourself the very best chance of dealing with all of these factors, whether you have control or not.