Finding your number, it may change how you retire

By Tim Ewins, Technical Analyst, Brunel Capital Partners

How much money do you need for the rest of your life?

It’s a big question. More than that, it’s a big question that leads to hundreds, maybe thousands of other big questions.

What do you want to do with the rest of your life?

You can’t answer the first question without the second, and you can’t achieve the second question without the first.

Then there’s the third question: What will the rest of your life throw at you?

If you can answer these three questions accurately, you’re on the way to knowing your number.

Your Number

Your number is the amount you need to live the way you want to live for the rest of your life, confident that you will never run out of money. Complete financial independence, or, if you prefer, freedom.

Since the introduction of pension freedoms your number has never been more relevant. Pension freedom puts the rest of your life in your hands. You have the freedom to take all of your pension funds at once (albeit taxed), but you also have the freedom to potentially run out of money. Pension freedoms could as easily have been called pension responsibilities.

Most people don’t take the time to find out their number and those who do find that it’s ever changing. You can work out your number at, say, 30 and then find that it’s a completely different Number when you’ve reached 40. Your lifestyle will have changed, your aspirations may have changed, and then there’s the costs of living and potentially long term healthcare provisions to compete with! It’s not easy finding your Number but it’s certainly necessary.

Finding your Number

Remember those three tricky questions? Well let’s take a closer look at them.

What do you want to do with the rest of your life?

I’ve heard the same answer to this question over and over again: ‘After I’ve retired I want to maintain my current lifestyle without ever running out of money’. After delving deeper I’ve found that this is never really the case. Some people want to support a charity or pass money onto their children, some people want to pursue a passion with their new found time, and some just want to live a simpler and calmer life. These are the people who find that their number is smaller than they thought. The point is that the very nature of your lifestyle will change in retirement so to just ‘maintain your current lifestyle’ is never enough. Which brings us to our next question:

What will the rest of your life throw at you?

This question addresses those uncertainties that will change your future and that are beyond your control. Maybe one of your children will unexpectedly boomerang back into your home, or maybe, hopefully, you’ll receive a windfall, an unexpected bonus. One unfortunate scenario that keeps emerging these days is the increasing need for long term care, the cost of which is often grossly underestimated. To be truly comfortable with your number you need to prepare for all of these uncertainties.

Finally, how much money do you need for the rest of your life?

Of course there isn’t a definite answer to this, but if you know what you want to do with the rest of your life it’s possible to make a rough estimation as to how much that might cost. Then, using the various possible answers for what the rest of your life might throw at you, it’s possible to create different scenarios to see how you would fair financially under each circumstance. Finally, you factor in your life expectancy, and let’s be generous here.

When you think you might have an idea of what your number is:

  • You plan for it
  • Then you update it
  • Then you plan for it again.

You keep on top of your number, and eventually, when you’ve got it, you use it.

Using your number

Finding your number involves a lot of hard to answer questions, but once you’ve found it you’ll have a great deal of answers too. You may already have savings, but now you’ll know what you’re saving for and this will help you to save effectively. You might want an early retirement but may not be sure how early your savings will manage, but if you know your number, you’ve got your date.

Knowing your number can be especially beneficial to business owners

It answers a whole range of ugly questions: at what point should you sell your business, when should you still be growing your business, and for what true purpose? It’s not just a case of what is your business worth, it’s a case of how much do you need it to be worth. If you know your number, these questions, and many others, answer themselves.

But it goes further than that

Just thinking seriously about your number now might change how you retire later, maybe you’ve been spending too much and need to cut back slightly now to live the rest of your life exactly how you want to live it. Or maybe, just maybe, you’ve already reached your number…

Knowing your number may well change your life.

Please talk to us if you want to find out more.

Tim Ewins, 0117 214 0870, tim@brunelcp.com