Robin writes:
Life can be pretty full-on in middle age. People find themselves juggling several demanding roles, both at work and at home. It’s especially challenging for parents of teenagers or young adults trying to make their way in the world, and the added stresses and strains of having ageing parents. It’s not surprising then that some people drift towards retirement without properly planning for it.
If that sounds like you, then the latest episode of The Episode of The Investing Show is a must-watch. In it, I interview JUSTIN KING. Justin is a specialist retirement planner and host of the Retirement Café podcast. He’s also the author of a new book, The Retirement Café Handbook: Nine Accelerators for a Successful Retirement.
Here are some of the questions we address:
What are the issues you need to think about as you approach retirement?
How do you work out how much money you’re going to need to retire on?
How important is it that you engage with a financial planner? And should they be a retirement specialist?
And how does the possibility of eventually needing long-term care fit into the picture?
I hope you find this episode useful.
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TRANSCRIPT
Robin Powell: Welcome to a new episode of The Investing Show, in which we’re looking at retirement. Now, for centuries, most people would carry on working well into old age. Even in the 20th century, you were lucky to live for another ten years after finishing work. Nowadays, retirement can last for decades, and yet some people just seem to drift into it without really having a plan.
I’ve been speaking to retirement planner Justin King, host of the Retirement Café podcast. He’s also the author of a new book, The Retirement Café Handbook: Nine Accelerators for a Successful Retirement. I started by asking Justin why so many people fail to prepare for retirement as thoroughly as they should.
Justin King: Well, you know, I think it actually happens in all types of life. I mean: we drift into being a little overweight, we drift into not being so fit as we want to be, we drift… sometimes our relationships can drift. Life is a bit like that. And of course, this retirement phase: you know, if you arrive at your retirement date – whatever date that is that you choose – and you just go, “right, I’m ready for this, I’ve planned for this, I know what to expect, I know what I’m going to do, I just can’t wait for this period of my life.”
Robin Powell: There was a time when people would finish work and never do another day’s work in their lives. But things are changing. Whichever option you choose, Justin says it’s vital that you have a sense of purpose.
Justin King: Well, for some people, I think it is still true. But for others: they go down to part time, or they shift gears totally. I would say an awful lot of the retired people that I’ve helped retire – you could actually say they’re as busy now as they were ever were when they were working. They may not be doing it for monetary reward any longer but they’ve got purpose and they’re fulfilled. They’re working in charity. They’re helping social groups. They’re looking after grandchildren. Family is important. You know, there are so many aspects. In fact, the classic statement I have is: “I don’t know how I ever had time to work!” You know, to have purpose anytime in your life is hugely important. Possibly though, of course, we have a wonderful opportunity to be really purposeful about this stage of life, because we are no longer maybe shackled to a job that possibly didn’t really stimulate us or fulfil us. It may have been that that is the case, but it may not have been – there’s an awful lot of people you can talk to and, you know, they’re dreading Monday morning. And if that is the case, then I want you to then go, “okay, so let’s make sure that this period of life is wonderful for you.” And that’s going to take some planning, and then also to have a conversation: what would be really fulfilling? Because that’s what you really want in life. You want to be fulfilled.
Robin Powell: So from a financial planning point of view, how do you start preparing for retirement? For Justin, the first thing you need to do is to take a look at your state pension.
Justin King: So many people go, “oh, I need to make some extra contributions,” and I go, “Do you? Let’s have a look… ah, right. Actually, you’re on target already to get a full state pension. Or, you will be by the time you get to 67 or 68 or whatever your state pension age is.” Knowing what that age is as well. People don’t know that. You know, this information is all there, but it’s a bit like – as I always think – you know, I’ve got a lot of cookbooks at home, and they’re wonderful. So, all the information is there but it doesn’t make me a good cook or a great chef. They pass on all that wisdom, but actually I’m the one who’s got to practice and take action and do something about it if I want a wonderful home cooked meal . So, let’s get the money aspects kind of on the table. “Okay. What does it look like?” Maybe as a couple, couple of state pensions. You know, 20 grand a year in state pensions – 10K each roughly in today’s terms. That’s a huge amount of cash. To make sure that you’re eligible for that and that you are going to understand what that’s going to give you. Have you paid the right contributions? Are you getting the right credits?
Robin Powell: For most people, the big question is: how much money they’re going to need to enjoy the lifestyle they want in retirement. But it’s not an easy calculation to make and that’s why this is the one stage of life when it’s crucial to seek professional financial advice.
Justin King: Financial planning is such an art, not a science. And we really – I mean, you know, Robin, you know a lot about investing – but we only know history. We don’t know the future. We don’t know what interest rates are going to be. We don’t know what inflation is going to be. We don’t know what the reinvestment returns are going to be. We know so little. It’s quite amazing that we can call ourselves retirement planners, with all honesty! We don’t know how long someone’s going to live. So we’ve got all these vagaries to deal with. So, you know, what we can control, of course, is how we live our lives, what we’re spending, and also be possibly really conservative with our approach of what our expectations are likely to be, what our investment returns are likely to be – to be quite negative or pessimistic about inflation. Because I just feel that, you know, you put it all in a spreadsheet for 30 years. And, as an ex-pilot and an ex-sailor, you get your course wrong by one degree, and you end up in totally the wrong place if you keep on that course for a long period of time. So I just want people to just be aware of the vagaries of this kind of work, and that – when we’re planning – the point that you give up all your income is a really crucial decision and the opportunity to maybe maintain some income and to be part of something for longer. I really love the idea of part-time work for people. I think it really nourishes people. It keeps them occupied. It keeps them within something that keeps their status. It keeps their ability to continue to contribute and to be part of the wider world. Not just: get the gold watch and leave.
Robin Powell: Another factor that makes retirement planning so complex is long-term care. Now, you may not need it. Most people die either at home or in hospital. But, you could require care for a very long time. And you may even need to sell your home to fund it.
Justin King: Fortunately, the value of UK property has risen so greatly over the last few years that it can pay for the majority of people’s care bills. Now, of course, the worst case scenario, I suppose, is that – if you’ve got a couple you’re working with – one of them needs care and one of them doesn’t. One of them needs to go into residential care and one of them doesn’t. So, in essence, you’re still continuing to pay for accommodation twice. And that will drain assets pretty darn quickly of course. But money can be borrowed. We don’t talk enough about equity release, I think, as a way of paying for care. That possibility is always on the table. And also having that discussion of what long term care annuities will buy. I’ve had plenty of scenarios where those types of annuity products – we recently just arranged one – just to guarantee and ensure that the rest of their capital won’t be eroded because the care fees are now covered and paid for.
Robin Powell: Abraham, why do you think so many people in their 40s and 50s drift towards retirement without properly planning for it?
Abraham Okusanya: What is it they say, Robin? Life is what happens when you’re busy making other plans. You know, as humans, if you think about our history: we focused on seasons, right? And we can think about the next season. And in the context of this, maybe we’re thinking about what’s happening in the next year. So it’s very, very difficult for us to think about ten years out, 20 years out. But the reality is that – before you know it – they come around very, very quickly! So the challenge is that, for most people, there is the natural tendency just to put off thinking about retirement, and that’s just the nature of who we are as humans. And so, planning for retirement Is is actually countercultural and we need to start getting into the rhythm of being able to think about the future, about what we envision our lives to be, and, and make plans for that.
Robin Powell: There’s a tendency to focus on what financial planners call the accumulation phase – when we’re building our personal wealth. Now you, Abraham, have always maintained that it’s just as important – if not more so – to plan for the decumulation phase, the spending stage of life, if you like. Why is that?
Abraham Okusanya: Well, it comes down to the points that Justin alluded to: the uncertainty of investment return, the uncertainty of inflation, and how prices are going to change in the future. And crucially, the uncertainty of how long we’re going to live for. I’m not sure I entirely agree with Justin that it’s all an art. I think there is an element of science in there, but that doesn’t remove all of that uncertainty. And so the decumulation phase is trying to contend with these uncertainties, and that requires having different tools, especially when it comes to modeling how these risks might show up, and being able to prepare and plan for them.
Robin Powell: Finally, what advice would you give to people who are grappling with that all-important question I mentioned earlier: how much do I need to retire?
Abraham Okusanya: Well, if you can: find yourself a good financial planner to actually help you address these questions. If you can’t, then there are educational courses and programmes out there that walk you through the steps. One of them is by my very good friend, Pete Matthew, and he has a programme and process that he takes people through to help them plan for retirement.
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