20 tips for a happy retirement. #1 Get your finances in order. Covid-19 edition.

Let me say it like this, unless you are one of the lucky few – That’s you Jeff, Bill and Eric and maybe Mr/Ms Pfizer and a few more, your finances are likely not looking as good as they did this time last year and we were hardly booming then. Hospitality is defined as ‘The act of being friendly and welcoming to guests and visitors’ – what isn’t often added is that this is usually unidirectional. That is when the pubs, clubs cinemas and restaurants are closed these businesses don’t get the opportunity and income falls off a cliff whilst rent and other expenses still need paying, whilst we, ‘the hosted’ become used to shopping on line for everything including ‘that fancy food and wine’ blow out for your special day and a movie too before bed on Netflix! How I do hope the ‘new normal’ isn’t totally gone forever!

If stocks have plummeted then you may feel that not playing stockbroker won’t have affected you, but look beneath – PENSIONS – your money is being invested and looking for growth so you can have a good standard of living and a little extra for a rainy day!

Don’t assume it’s all about the money but don’t ignore your finances. Don’t try to keep up with the Joneses but rather try to be satisfied with what you have. Of course, it’s best to go into retirement with adequate savings but retirement doesn’t have to mean no work or no income. However, as we age, we may be entitled to different tax breaks and Social Security benefits so get advice early.

Does money buy happiness?  “High Income Improves Evaluation of Life But Not Emotional Well Being” By Daniel Kahneman and Angus Deaton 2010 suggests it’s slightly more complicated than you may think! They have showed that up to a point it does but then no more. It can however make you feel better about your life overall. When plotted against log income, life evaluation a person’s thoughts about his or her life (on a longer time scale) rises steadily. Emotional well-being, the quality of a person’s everyday experience such as joy, fascination, anxiety, sadness, anger, and affection also rises with log income, but there is no further progress beyond an annual income of about $75,000/£60,000.

Take Home Message: High incomes don’t bring you happiness, but they do bring you a life that you think is better.

However low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health and being alone. They conclude that high income buys life satisfaction but not happiness but that low income is associated both with low life evaluation and low emotional well-being.

“Money makes the world go round; however, happiness greases the axle. Without this lubricant, life will seize.”  Paul Van Der Merwe.

Retirement may involve a squeeze on your wallet so best to work out where you stand before taking a leap in the dark!

What will your expenses be?

Many of us are not altogether sure what we spend now so a sensible first step might be to work this out and include everything you spend. Some expenses such as commuting to work can be removed and others such as more travel can be added in later, but first where do you stand NOW. Most of us will have an idea as to whether we spend all or most of what comes in or if we are savers and there is a growing nest egg. The first ten years are likely to be the expensive as we do those things we have been putting off until retirement and enjoy the TOYL – the Time Of Your Life!

What will your income be?

If you have invested in a Private Pension you may well be able to draw down a significant proportion to use for some of your expensive vacations, paying off the mortgage and other debts. The remainder will provide a regular income depending on the value of the pot and how much you take out. Most of us will be eligible for a State Pension which as the population ages will be paid out ever later – Currently I am due mine at 68, you need to check this and add it to your calculation, however it’s likely to move upwards over time! If there are other sources of income then add these in too, but don’t overestimate or rely too much as the world economy has a habit of being to say the least ‘volatile’ – That bit about ‘investments can go up as well as down’ should be taken to heart. Will you continue to work in some capacity? Have you a business idea that can generate income (..or lose?!) – Will this need pump-priming with a large cash injection? All these variables need to be considered.

Will your savings generate enough cash?

There is no way of knowing what will happen to inflation, interest rates or returns on investments. Regarding the latter, most Financial Advisers would suggest investments are switched to less risky instruments so that although potential returns are less than they might have been, the risk of losing a significant portion and thus income is minimised. Obviously the later you take the pension, the smaller the lump sum, the more income you can generate elsewhere and being a little more frugal the bigger the monthly budget. Remember that often the ‘elderly’ get discounts at the theatre and cinema etc. – What’s wrong with going to the matinee or seeing the latest block buster on a wet Tuesday afternoon?

Will your savings last as long as you? (More in https://itsthetimeofyourlife.com/2019/07/29/taboo-3-money/ .)

As we live longer retirement plans we started decades ago may not have kept up. A healthy, upper-middle-class couple who are 65 today have a 43 percent chance that one or both partners will live to see 95 so savings need to be adjusted accordingly and assuming we will have failing health and some need for carers either at home or in a specialised facility this may well cost far more than we perceive. It’s well known that care-home costs are high, but research reveals that more than half of the population seriously underestimate just how expensive they can be with more than half coming up with a figure that fell well short of the average cost, so getting the right information is key.

In short, sorry to disappoint but there is no simple rule of thumb or one size fits all calculator. The world out there is possibly a less predictable place to be as we age, as economies and health can never be predicted with any certainty. So, my advice? Yes, get a financial adviser to help you calculate the money but do remember that it’s not all about €$¥£’s – health, happiness and attitude to risk all count too as does the position you start from. Tomorrow is the first day of the rest of your TOYL!

Pension Income (More at https://itsthetimeofyourlife.com/2019/08/26/pensions-part-1/ and https://itsthetimeofyourlife.com/2019/09/23/pensions-part-2/)

MoneySavingExpert.com suggests as a rule of thumb for individuals that you take the age you start your pension and halve it. Put this % of your pre-tax salary aside each year until you retire. Make sure you include your employer’s contribution in that percentage. So, someone starting aged 32 should contribute 16% of their salary for the rest of their working life.

Certainly paying pensions to the retired for 30 – 40 years with the current system is impossible and many governments have made it mandatory that employees and employers have pension plans and contributions. These will have to start earlier, be a bigger proportion of income and be paid out much later in life.


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