Planning or dreaming of retirement? If you are anything like me, you plan most things in your life. Plan what you are doing this weekend, plan where and when you go on holiday. And I am sure you plan your working life, whether that is short term plans or long term career plans. It’s what we all do. We are serial planners of just about every aspect of our lives, except one. The big one! Life after your career is over or retirement as we love to call it. I’m not keen on the word retirement as is all sounds like not doing very much and I am sure that is not what you have got in mind.
You see, life after work should be an enriching time in life, time to travel, time to do the things that you have not had time to do because you have been busy running a business, building a career, raising a family, paying off mortgages to name just a few.
So your life is full of plans right now, so what should we all be thinking about when it comes the day when we no longer go to work. Here’s my 6 essential steps to getting your future exit from work plan spot on.
1. Before you even begin to think about money and how much it is going to cost, ask yourself
“What do you plan to do with your time?”
“What are my immediate plans for the first six to twelve months of retirement?”
“And after that, how do you see the next ten years of your life and after that?”
You see, without knowing what you think life is going to be like, how can you work out what it is going to cost.
2. So the next step is to work out how much money you will spend each month and you have to be realistic. Some of the expenses you have now may disappear altogether, such as mortgage costs and school fees. Don’t forget to include non regular expenses such as birthday gifts and any other costs that do not occur every month.
3. Now that you have worked out how much money you need each month, how much overall money do you need to have that income. Using very simple maths, take that number and convert it into an annual amount, double it and add a zero to it. This will give you the capital sum you need in very simple terms. For example, if you monthly required income is £3,000, this equates to £36,000 a year. By doubling it and adding a zero, you will need capital of £720,000. What we haven’t worked into the figure is inflation, which we do not have time to get into detail in this article. But we are on the right lines.
4. The next step is to identify where you are right now on that journey and work out what the current gap is. Once you know that number, you can start to plan. What other money could and will form part of that overall plan for your future. Will you downsize your home? Are you likely to inherit money? What are all the factors that will come into play once you retire?
5. Now you need to work out what you have to save/invest to make you get to your number. It may not be that easy as we all have limited resources. The reality is that for most of us we cannot solve it straight away because it would be just too costly. However, if you know what you’ve got to do, you have more chance of achieving that goal. If you don’t know what needs to be done, the first step is to work out what has to be done.
6. The final step of this process is to commit this plan to pen and paper. Get it written down. There is something about a written down plan that makes it more effective and likely outcome. A goal in your head is just a dream, a goal written down is “a plan of action.”
Martin Dodd is a Chartered Financial Planner running his own practice Midlands Investment Agency, specialising in helping clients retire to a happy and stress free retirement.
