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You’ve Spent Your Life Saving. Now Learn How to Spend · Merryn Talks Money

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to Meron Talks
0:19
Speaker 1: Your Money, the personal finance edition of Merin Talks Money
0:22
Speaker 1: and these bonus podcasts we talk about the best strategies
0:25
Speaker 1: for making the most of your money. I'm Mertin something
0:27
Speaker 1: that web and with me, senior reporter of Money Distilled
0:30
Speaker 1: author John Staback. Hi, John him. Okay, we have got
0:38
Speaker 1: great listeners, and so this week's episode was inspired by
0:41
Speaker 1: an email from one of those listeners. So fan of
0:45
Speaker 1: the show, Craig, Thank you. Craig wrote in to ask
0:47
Speaker 1: about his retirement. He's writing about his own experiences. He's
0:51
Speaker 1: worked hard, he's saved, he's planned, he's budgeted, and he has,
0:54
Speaker 1: as he puts it, developed frugal skills. Your wartime grandmother
0:58
Speaker 1: would have been proud of. Now and I'm still quoting
1:00
Speaker 1: Craig here. Now you're suddenly sixty something. You have that
1:03
Speaker 1: pesky mortgage paid off and some money put aside, but
1:05
Speaker 1: you can't bring yourself to spend it, can't bring yourself
1:08
Speaker 1: to splash out on yourself. And the worst is that
1:11
Speaker 1: you can't find anything you really need anymore, even want
1:14
Speaker 1: that badly. So all that pain, enjoy it accumulating and
1:18
Speaker 1: saving through your younger life seems like a waste. Maybe
1:21
Speaker 1: you should have just enjoyed your life more then. Oh god,
1:24
Speaker 1: this is terrible, Craig. I'm feeling for you here. Your
1:26
Speaker 1: kids are grown and settled and working. They don't need
1:29
Speaker 1: a financial legacy, tell you what, Craig, But they think
1:32
Speaker 1: they do. Enjoy your money, they say, and live your
1:34
Speaker 1: life to the full. But the lifelong habits possessed, and
1:37
Speaker 1: I can't. Can you help with this dilemma? Well, so
1:43
Speaker 1: the first thing to say on this is this brace
1:45
Speaker 1: a mixed reaction from the team. So you and I,
1:47
Speaker 1: you know, we're getting old. Now we get to immediately
1:49
Speaker 1: understand what Craig is talking about. Some of our younger
1:52
Speaker 1: production stuff. You know, they're a bit like this, even
1:55
Speaker 1: a real problem not knowing how to spend your money.
1:57
Speaker 1: But you know, I have been thinking about that's quite
2:00
Speaker 1: a lot since we got this email, and you know,
2:04
Speaker 1: I really do get it. And we have said on
2:07
Speaker 1: this podcast a lot that when you are thinking about
2:11
Speaker 1: your spending and your saving, you're trying to find a
2:13
Speaker 1: balance between today you and tomorrow you. And you've got
2:17
Speaker 1: to find the right balance. Because of course tomorrow you
2:20
Speaker 1: might not even exist. Oh, we have no idea. What's
2:22
Speaker 1: going to happen between today you and tomorrow you. You've
2:24
Speaker 1: got to find the right balance. You've got to live
2:25
Speaker 1: now as well as saving to live later. But there's
2:29
Speaker 1: more to it than that. There's this idea which again
2:33
Speaker 1: we've talked about that pretty much everyone, and even if
2:35
Speaker 1: they won't admit it, they have in their head a
2:39
Speaker 1: target level of accumulation. I'll be fine when I've got
2:43
Speaker 1: a million quid, I'll be fine when I've got one
2:46
Speaker 1: and a half. I'll be fine when I've got to
2:48
Speaker 1: whatever it is. Everyone has this in their head and
2:51
Speaker 1: everyone who is adding out. My house is worth this,
2:53
Speaker 1: my pentan is worth this, my savings are worth this,
2:55
Speaker 1: et cetera, et cetera. You get there, you get your target,
3:00
Speaker 1: and then you have to run down your target. You're
3:03
Speaker 1: moving away from something that you spent forty years heading towards.
3:07
Speaker 1: That is that's the kind of psychological hell, and at
3:11
Speaker 1: the same time you're confronting your own mortality. I've got
3:16
Speaker 1: the target, I got to the top. Now I'm on
3:19
Speaker 1: the way down. I'm on the way out. And when
3:22
Speaker 1: I think about my money and how much there is
3:26
Speaker 1: I have to think about how many years I think
3:28
Speaker 1: I'm going to live. I mean, I'm done now. I'm
3:33
Speaker 1: never retiring. I'm never going to be Craig. I'm just
3:35
Speaker 1: going to keep accumulating forever. I can't I can't even
3:38
Speaker 1: begin to face the psychological issues that Craig has brought
3:42
Speaker 1: up here. Have you been thinking about it like this
3:44
Speaker 1: or have you just been, you know, counting your money?
3:47
Speaker 2: Those that exactly the things have been thinking about. I mean,
3:49
Speaker 2: this is fundamentally a problem with the human condition. It's
3:52
Speaker 2: like you may get hit by a bus tomorrow, but
3:55
Speaker 2: you might not, and that's the uncertainty that you have
3:58
Speaker 2: to live with and plan for. And you don't have
4:01
Speaker 2: the number, well, you don't have the key number in
4:03
Speaker 2: the equation that you need for absolute certainty, which is
4:07
Speaker 2: at what age am I going to die? And the
4:09
Speaker 2: problem is, yeah, you do get to the point where
4:12
Speaker 2: you know, you'd like to say you've got all your money,
4:15
Speaker 2: and at this point that it's been that goal for
4:18
Speaker 2: such a long time, and if you are someone who's
4:21
Speaker 2: heavily goal orientated, then it's somedingly like, well what do
4:24
Speaker 2: I do next? And one other issue I think, and
4:28
Speaker 2: I think this afflicts men, or at least full time
4:34
Speaker 2: career driven people quite badly. Your goal is okay, let's retire,
4:40
Speaker 2: and then your next big goal becomes, well, actually, my
4:43
Speaker 2: next big goal is is death. And if you're not careful,
4:47
Speaker 2: then you sort of spend your retirement with that sort
4:51
Speaker 2: of looming over you. Is almost like it's like, well,
4:54
Speaker 2: what am I doing now? And I think that I
4:56
Speaker 2: do think that. I mean part of what Craig is
4:58
Speaker 2: talking about here and we probably wouldn't discuss this into
5:02
Speaker 2: but is what purpose do you replace?
5:07
Speaker 1: You know?
5:07
Speaker 2: What is your new purpose? How do you keep building?
5:11
Speaker 1: Yeah? But is this why so many people are obsessed
5:13
Speaker 1: with inheritance tax? Your new goal becomes not paying inheritance tax.
5:18
Speaker 1: You know, first you're accumulating and now you've got to
5:20
Speaker 1: find something else, something else financial, And it's all about that.
5:23
Speaker 1: I don't know anyway. Yeah, everyone needs a target, everyone
5:28
Speaker 1: needs an obsession. You know, target driven people are the
5:31
Speaker 1: most Well, this is not a self help podcast. We
5:34
Speaker 1: keep saying, we get, we get. We have a guest
5:36
Speaker 1: coming up, and now he's going to think he's on
5:38
Speaker 1: a self help podcast. Georgia, not on a self help podcast. Okay,
5:42
Speaker 1: financial podcast. So moving on the key point here being
5:47
Speaker 1: there are no pockets in a shroud. So this that's
5:51
Speaker 1: a wonderful phrase, doesn't It keeps coming up on this podcast.
5:53
Speaker 1: So all this raises some really interesting questions. What is
5:57
Speaker 1: the best way to scenario plan for your retirement? How
5:59
Speaker 1: can you feel well informed about what you're realistic spending
6:02
Speaker 1: limits are. How can you give yourself a spending target
6:05
Speaker 1: to work for as opposed to a saving target to
6:07
Speaker 1: work towards, particularly if you have spent the last forty
6:10
Speaker 1: years aggressively saving, which by the way, is not exactly
6:12
Speaker 1: what we would advise on this non self help podcast.
6:15
Speaker 1: So to help us talk about that and address some
6:17
Speaker 1: of the issues that had been brought up by Greig,
6:19
Speaker 1: Thank you again, Craig. We have invited on George who
6:21
Speaker 1: as a chartered financial planner and retirement planning a specialists
6:25
Speaker 1: firm is called Flying Colors Advice. Welcome George, and thank you.
6:29
Speaker 1: Sorry about that lengthy introduction, but do you know I
6:31
Speaker 1: was up all night worrying about or having a target anymore?
6:34
Speaker 1: As I age, I was.
6:35
Speaker 3: Going to say, I absolutely love the introduction. It was
6:38
Speaker 3: great and you perfectly articulated what I've heard so many
6:41
Speaker 3: times from clients, maybe not said directly. You seem to
6:44
Speaker 3: have every detailed kind of work through, but it was
6:46
Speaker 3: an amazing intro. So I was nodding my head along
6:49
Speaker 3: to it.
6:49
Speaker 1: Thinking that's great, thank you.
6:52
Speaker 3: First, I just want to acknowledge that, you know, it's
6:54
Speaker 3: really difficult to get this right because this is a
6:57
Speaker 3: first world problem. But it's a problem nevertheless, and hit
7:00
Speaker 3: now on the head where it's as much psychological as
7:02
Speaker 3: it is financial. And we're creatures of habit and at
7:05
Speaker 3: the end of the day, the same habits that are
7:07
Speaker 3: going to make you financially successful are probably going to
7:10
Speaker 3: make it quite hard to spend if you are financially successful.
7:14
Speaker 3: The vast majority of us, we part of our identity
7:17
Speaker 3: is we become accumulators, and that's all well and good,
7:20
Speaker 3: But then the problem is what happens when the figures
7:22
Speaker 3: are supposed to go down? How exactly do we plan
7:25
Speaker 3: for that? I think when I read kind of Craig's question,
7:29
Speaker 3: the thing that really struggle me, if I'm being honest,
7:31
Speaker 3: is don't we beat ourselves up so much on everything?
7:35
Speaker 3: Which is that if it's not crisis because you're not
7:37
Speaker 3: saving enough. It's crisis because maybe you've not spent the
7:40
Speaker 3: right amount. And this, especially in retirement, this is so challenging.
7:44
Speaker 3: You know. William Sharp's a Nobel Prize winner in economics.
7:47
Speaker 3: He called turning your lifetime savings into sustainable income the nastiest,
7:52
Speaker 3: hardest problem in finance. And the reason he did is because,
7:56
Speaker 3: as Johnny said, we don't know how long we're going
7:58
Speaker 3: to live. We don't know what inflation is going to be,
8:00
Speaker 3: we don't know what market returns are going to be,
8:02
Speaker 3: we don't know if we're going to need care, and
8:03
Speaker 3: we don't know what the sequence of returns are going
8:05
Speaker 3: to be. So all of this kind of adds together.
8:09
Speaker 3: But for Craig, you know, I think the thing to
8:13
Speaker 3: put himself on the back with is he said, you know,
8:15
Speaker 3: kids settled, no mortgage retirement, where it seems like he's
8:18
Speaker 3: acknowledging he's got financial security, he has options, and probably
8:23
Speaker 3: the first step to resolution might just be taking step
8:26
Speaker 3: of stock of what he's achieved first, as opposed to
8:29
Speaker 3: looking at the missed opportunity. But there are things we
8:31
Speaker 3: can do to address the missed opportunity.
8:33
Speaker 1: But as well, when you say the missed opportunity. What
8:36
Speaker 1: do you mean the fact that he has possibly oversaved
8:39
Speaker 1: and he hasn't. This man has not spent enough time
8:41
Speaker 1: in the Maldives in his head.
8:43
Speaker 3: Yeah exactly, And I am kind of inferring slightly from
8:47
Speaker 3: the question, but I think there's the kind of the end.
8:50
Speaker 3: But he says, enjoy your money, live your life to
8:52
Speaker 3: the full. Lifelong habits persist and I can't, and he
8:57
Speaker 3: kind of the indication is sort of maybe wasted opportunity.
9:00
Speaker 3: I think the big thing I'll be saying to him
9:03
Speaker 3: as an individual, and then maybe we can kind of
9:05
Speaker 3: take some lessons from it, is you are at retirement.
9:08
Speaker 3: You're at the ultimate point where you have freedom. And
9:11
Speaker 3: sometimes we look at wealth in a really kind of binary,
9:13
Speaker 3: singular way we think of money. But in my view,
9:16
Speaker 3: and certainly why I encourage my clients, wealth isn't just money.
9:19
Speaker 3: It's health, it's relationships, it's purpose, which is what you
9:23
Speaker 3: touched upon freedom, it's freedom. Yeah exactly, and he's ticked
9:25
Speaker 3: that box. But especially if you ask someone listening who
9:30
Speaker 3: is approaching retirement, you need to spend as much time
9:33
Speaker 3: thinking about what you're retiring too, as much as you're
9:36
Speaker 3: spending time thinking about what you're retiring from. You know
9:39
Speaker 3: what happens that first day on perhaps a rainy Tuesday,
9:42
Speaker 3: and you're probably listening to this in a very rainy
9:44
Speaker 3: January where other people are at work, or maybe you're
9:47
Speaker 3: down the golf course and you know, saying the same
9:50
Speaker 3: jokes for the fourth time. How are you going to
9:52
Speaker 3: fill your calendar so that you can continue to have
9:54
Speaker 3: some purpose?
9:55
Speaker 1: I suppose you have saying we should say about Craig
9:57
Speaker 1: before we move on, that he does seem to have
9:59
Speaker 1: a very interesting set up here where his children are
10:02
Speaker 1: grown and settled and working and don't need a financial legacy.
10:06
Speaker 1: And as I said, I'm sure that they'd appreciate a
10:08
Speaker 1: financial legacy, but he's in an interesting position there. I
10:11
Speaker 1: think there'd be very few people these days in their
10:14
Speaker 1: sixties who could safely say that they felt their children
10:17
Speaker 1: were fully financially settled. And spoken to a reasonable number
10:21
Speaker 1: of people recently of this sort of age group who
10:23
Speaker 1: look around themselves and they see, you know, the value
10:25
Speaker 1: of their house, which might have been the thing that
10:27
Speaker 1: they intended to leave to their children as their financial legacy,
10:31
Speaker 1: that value is falling, particularly if they're and maybe in
10:34
Speaker 1: the southeastern and central London, so their mental mind map
10:38
Speaker 1: of how much they might have to leave to their
10:40
Speaker 1: children is falling. And possibly they're also seeing their own
10:43
Speaker 1: children having trouble with cost of living crisis, getting on
10:46
Speaker 1: the housing ladder, themselves, financing their children's education, all these things.
10:50
Speaker 1: So there is a group of people Craigue is not
10:52
Speaker 1: among them, who are suddenly finding in their sixties that
10:56
Speaker 1: they have financial pressures they didn't expect. Yeah.
10:59
Speaker 3: Absolutely, as far as kind of practical stuff to try
11:02
Speaker 3: and address this, and it's so difficult because we can
11:04
Speaker 3: never summarize the generation, We can never really generalize. But
11:08
Speaker 3: as far as what I do day in day out
11:10
Speaker 3: with my clients, the heart of it always has to
11:13
Speaker 3: come back to a cash flow plan. So we talked
11:15
Speaker 3: about so if you think about on the way up
11:17
Speaker 3: you're budgeting, and especially perhaps in your thirties and early forties,
11:22
Speaker 3: the reality is you can just go on a mode
11:25
Speaker 3: where I just want to accumulate as much as I can.
11:27
Speaker 3: You know, the number needs to go up in the
11:29
Speaker 3: fastest possible and most tax efficient way. Yeah, but I
11:32
Speaker 3: would say when, especially when you start to get towards
11:35
Speaker 3: retim start to approach it. That's really where a cash
11:37
Speaker 3: flow plan comes in, and professionals like myself, we use
11:42
Speaker 3: kind of quite sophisticated modeling software where you can go
11:45
Speaker 3: in and actually you can put into the system if
11:47
Speaker 3: I wanted to die with zero, how much do I
11:50
Speaker 3: need to spend based on these figures, and then I've
11:52
Speaker 3: got to spend the rest of the meeting. Go No,
11:54
Speaker 3: we're not going to spend that amount, by.
11:55
Speaker 1: The way, because it's really racy. But I mean, that
11:59
Speaker 1: is the time get right, die broke?
12:01
Speaker 3: Is it mere? Though? That's interesting though?
12:04
Speaker 1: Is I don't know. I mean, it feels like a
12:05
Speaker 1: good target. Then there's no tax to pay. Everything's been
12:08
Speaker 1: either given away or spent, and you know, you accumulated
12:12
Speaker 1: perfectly and then you decumulated perfectly. So maybe we can
12:15
Speaker 1: offer that as a goal to people to get rid
12:17
Speaker 1: of their deccumulation anxiety. Make dying broke the goal.
12:22
Speaker 3: Yeah, and actually let's dive into that because that actually
12:24
Speaker 3: there is some things to talk about, especially when we're
12:27
Speaker 3: talking about property and pensions. So I'll kind of dive
12:30
Speaker 3: into some kind of legislation. So from twenty twenty seven,
12:33
Speaker 3: certain new tax year pensions are going to be inside
12:36
Speaker 3: of the estate for inheritance tax, and this has fundamental
12:39
Speaker 3: for my clients who have a bit more money. This
12:42
Speaker 3: has completely changed the cash flow plan entirely. So just
12:46
Speaker 3: to recap on the rules, Basically, this is not including
12:48
Speaker 3: defined benefit pensions because they generally die either with you
12:52
Speaker 3: or they die after your your spouse or civil partner
12:55
Speaker 3: passes away. This is specifically around flexible pensions where you
12:58
Speaker 3: have a pot Now current rules tho these were actually
13:02
Speaker 3: very tax efficient legacy vehicles because effectively, post of twenty fifteen,
13:06
Speaker 3: you could leave them outside of the estate and it
13:08
Speaker 3: meant that, okay, if I don't spend my pension, it's
13:10
Speaker 3: an incredible legacy option. Because at the moment nil rate
13:15
Speaker 3: bands are three hundred and twenty five thousand pound per individual.
13:18
Speaker 3: You also have what's called the main residence nil rate band,
13:21
Speaker 3: and this effectively means that a single person it's up
13:23
Speaker 3: to five hundred thousand. If you're married civil partner, it
13:26
Speaker 3: can be potentially up to a million. Now, pensions are
13:29
Speaker 3: going to get dragged into the estate from twenty twenty seven.
13:33
Speaker 3: And it's not just that there's a cliff edge around it.
13:36
Speaker 3: This is assuming you've got a flexible pot, so not
13:38
Speaker 3: a defined benefit pension. And if you die after seventy five,
13:42
Speaker 3: not only will that be inside of your estate after
13:45
Speaker 3: you and your spouse die, assuming you leave it to
13:47
Speaker 3: your spouse, but also if you die after seventy five,
13:50
Speaker 3: it's taxable at the beneficiary's marginal rate. Now, let's say
13:55
Speaker 3: you are based in the South, and let's just say
13:57
Speaker 3: your house is worth over a million, which is a
14:00
Speaker 3: substantial amount of money. But let's just say that is
14:03
Speaker 3: the case. You've also got then your pension part and
14:05
Speaker 3: you don't know how long you're gonna live. The problem
14:08
Speaker 3: is if your pension is inheritance tax eligible, that means
14:12
Speaker 3: they will lose forty percent inheritance tax. And then, in
14:15
Speaker 3: like Craig's example, if the kids are settled, perhaps they're
14:19
Speaker 3: higher rates then post seventy five, if they then try
14:22
Speaker 3: and draw out the pension they've inherited, they've not only
14:25
Speaker 3: paid forty percent inheritance tax, but then they might pay
14:28
Speaker 3: an extra forty percent if they're higher rate and we're drawing,
14:31
Speaker 3: so the tax rate for them would actually be sixty
14:33
Speaker 3: four percent when you work it out, forty and then
14:36
Speaker 3: forty percent of the residual. So what does that mean? Well,
14:40
Speaker 3: going back to Craig's position, we do need to kind
14:43
Speaker 3: of reframe it is that if you are affected by that,
14:46
Speaker 3: you might not be wanting to spend as much. But
14:50
Speaker 3: how do we feel about legacy, how do we feel
14:52
Speaker 3: about inheritance tax planning? And sometimes that can get them
14:55
Speaker 3: off of the fence a little bit towards action.
14:59
Speaker 1: Yeah, so you need basically you need to spend all
15:01
Speaker 1: the money inside that pension rapper shearpish to avoid your
15:05
Speaker 1: airs having to spend having to pay sixty four percent
15:08
Speaker 1: taxation on it. So that's quite a quite a driver
15:11
Speaker 1: for Craig.
15:13
Speaker 3: Yeah. I think the other thing I think was interesting
15:15
Speaker 3: about Craig's comment as well, as he says, what was it?
15:17
Speaker 3: I don't want to splash out on mess yourself? So
15:20
Speaker 3: nothing to splash out on yourself? The thing I would
15:22
Speaker 3: push back if he was a client, I would say,
15:23
Speaker 3: what do you mean by that splash out on yourself?
15:26
Speaker 3: You know what do you mean by that?
15:27
Speaker 1: Is that?
15:28
Speaker 3: Is there anything that you're not spending on? Is there
15:30
Speaker 3: anything you want to do kind of intentional? Because we
15:32
Speaker 3: do have this, you know, this mindset sometimes where no
15:37
Speaker 3: one wants to be seen as extravagant. But a pound
15:41
Speaker 3: when you are sixty or fifty five it has a
15:44
Speaker 3: different utility to a pound when you are eighty five ninety.
15:47
Speaker 3: I'm not saying all eighty five year olds don't spend anything.
15:51
Speaker 3: I'm saying, no one's promised tomorrow. And you know we
15:54
Speaker 3: can't be guaranteed to be going down the ski slopes
15:57
Speaker 3: at eighty five. I think that's a fair thing to say.
15:59
Speaker 1: I wants to climb killim and Jarrow. He needs to
16:02
Speaker 1: get moving.
16:02
Speaker 3: Yes, exactly, exactly, And a good financial planner should be
16:07
Speaker 3: always encouraging someone to spend their money purposely for today.
16:10
Speaker 3: It's not about being wasteful, but it's about going right.
16:13
Speaker 3: We've got a cash flow plan. How are you making
16:16
Speaker 3: the best use of the money. And I'm quite proud
16:18
Speaker 3: to say that quite a lot of my meetings with
16:19
Speaker 3: clients I will be saying, look, we can spend a
16:21
Speaker 3: bit more. Is there anything you've not done? Is there
16:23
Speaker 3: anything you would regret not doing? Because we all live
16:27
Speaker 3: our lives a bit on autopilot, don't we, and especially
16:31
Speaker 3: if we're used to accumulating, sometimes you need a bit
16:34
Speaker 3: of permission to go on the holiday or go business?
16:38
Speaker 1: Oh, good business.
16:39
Speaker 2: Now these are really tough questions, Lord, which I think
16:45
Speaker 2: is sort of getting to the other if you like
16:48
Speaker 2: the psychological point. But Krieg is time. But is there
16:50
Speaker 2: any advice that you give to people who are sort
16:56
Speaker 2: of like certainly they're saying, well, asley, I don't know
16:58
Speaker 2: what I want to do. And I think this is
17:00
Speaker 2: probably something that hits maybe in the like very early
17:04
Speaker 2: retirement rather than you know, once they've got used to it.
17:08
Speaker 2: But that is just part of that big kind of
17:10
Speaker 2: shift and suddenly thinking I said, what is the point?
17:14
Speaker 2: What am I doing here? And then you've got the
17:16
Speaker 2: risk that you sit there and think, well, actually, that
17:18
Speaker 2: hobby that I spent ages saying I was going to
17:21
Speaker 2: spend you know, the rest of my life in the
17:22
Speaker 2: golf course, I don't actually fancy that anymore. Is there
17:25
Speaker 2: anything you have a turn around to people and say, well, look,
17:28
Speaker 2: I don't know, like you know, take a holiday for
17:30
Speaker 2: a fortnight and just you know, like think about this problem.
17:35
Speaker 2: I mean, if you get any sort of suggestions for
17:37
Speaker 2: that early point after retirement and how you can sort
17:41
Speaker 2: of ease yourself gently into that. It's just because change
17:43
Speaker 2: is traumatic it's like, how do people take time out
17:46
Speaker 2: from that?
17:47
Speaker 3: Yeah, this is a really good question, and the truth
17:50
Speaker 3: is the best time to think about this is before
17:52
Speaker 3: you retire, not on the day of retirement. There's going
17:54
Speaker 3: to be so much that will change at that point,
17:56
Speaker 3: you'll have that identity shift that like anything, if you're
17:59
Speaker 3: going to make a big change, the best thing to
18:01
Speaker 3: do is to ease yourself into it. And that doesn't
18:03
Speaker 3: necessarily mean continue working, although sometimes part time work can
18:07
Speaker 3: be a really good way to ease your way into it.
18:09
Speaker 3: But you should be looking at your calendar and thinking,
18:12
Speaker 3: how where am I going to get the purpose that
18:14
Speaker 3: I had from work? Where I'm I going to get
18:16
Speaker 3: the engagement? If we go to the gym to keep
18:18
Speaker 3: ourselves physically fit, how am I going to remain mentally
18:21
Speaker 3: strong and resilient and make sure that I've got things
18:23
Speaker 3: to fill my time. So absolutely answer your question, John,
18:27
Speaker 3: I am speaking with my clients and saying, okay, so
18:29
Speaker 3: what are you retiring to you know, tell me about
18:31
Speaker 3: your weekend, you know, tell me about what you're going
18:33
Speaker 3: to be doing to fill your time. Now, for those
18:35
Speaker 3: that are highly engaged, they will list tons of stuff
18:38
Speaker 3: around the house hobbies, you know, things are going to do, volunteering.
18:43
Speaker 3: Often it tends to come with maybe perhaps a bit
18:46
Speaker 3: of extra family support they've got grand kids on the
18:48
Speaker 3: way or something along those lines. And that's always great
18:51
Speaker 3: to hear the people who I worry about, and I
18:53
Speaker 3: always push back and just say, look, I think you
18:55
Speaker 3: really need to think about this is the kind of
18:58
Speaker 3: the perhaps the one who's been the big as the executive,
19:01
Speaker 3: who has maybe not had time or the inclination to
19:04
Speaker 3: think about it. Maybe, if I'm being honest, it's something
19:07
Speaker 3: they don't really want to think about because they've got
19:09
Speaker 3: a lot of their identity from what they're doing in work,
19:12
Speaker 3: and it's so individual, so it's difficult for me to
19:16
Speaker 3: take a sweeping statement. But I would often push back
19:19
Speaker 3: in those conversations and say, are you sure you've got
19:21
Speaker 3: enough to you know, to really enjoy your retirement, because
19:24
Speaker 3: the truth is there are some who regret retiring, and
19:27
Speaker 3: we don't want that as a planner. I don't want
19:29
Speaker 3: to see that. I don't want to see you, you know,
19:31
Speaker 3: a couple of times a year looking more miserable every
19:33
Speaker 3: time I see you.
19:34
Speaker 1: Isn't that what charity boards afore George, Yeah, exactly, exactly. Yeah,
19:38
Speaker 1: half the charities in the world exist to give retired
19:41
Speaker 1: people something to do.
19:43
Speaker 3: Yeah, well, there is that, There is that, But I
19:45
Speaker 3: think it comes down to intentionality. If you think about
19:47
Speaker 3: retirement being you know, it's not a one off thing.
19:50
Speaker 3: There is no way that we would plan for something
19:53
Speaker 3: as big in our life without or we would go
19:55
Speaker 3: into something as big without a really well thought out plan.
19:58
Speaker 3: And sometimes I think we feel like retirement is just
20:01
Speaker 3: this thing that happens that you just disappear off into
20:04
Speaker 3: the sunset. It's not. It's a phase of life. It's
20:07
Speaker 3: the third act, and we need to make sure that
20:09
Speaker 3: it's actually worth all the things that you've sacrificed for.
20:20
Speaker 1: I can't tell you how anxious I am now feeling, George,
20:26
Speaker 1: I don't know, so terrified of the idea of retirement
20:29
Speaker 1: looming in a decade or something. To sit down and
20:31
Speaker 1: make plans. I've got to make some lists of so
20:33
Speaker 1: much stuff I've got to do in preparation for this.
20:35
Speaker 1: But let's go back to making an actual plan. How
20:40
Speaker 1: do we sit down and figure out how much we
20:44
Speaker 1: should be spending. I'm using the word should quite carefully here.
20:47
Speaker 1: What does Craig do, Now, how does he sit down
20:49
Speaker 1: and find out what he actually should be spending?
20:52
Speaker 3: Yeah, and it would be very self interested me saying,
20:55
Speaker 3: work with a financial planner. But this is generally absolutely
20:58
Speaker 3: called George. Yeah, this is we have a lot of
21:00
Speaker 3: value because it is what we do day in day out.
21:02
Speaker 3: But even if you don't, I think unless you are
21:05
Speaker 3: just that person who has just a define benefit scheme
21:08
Speaker 3: and it meets your needs and then it will get
21:09
Speaker 3: topped up from your state pension, the vast majority of
21:12
Speaker 3: the scheme, Yeah, the vast majority of us have all
21:14
Speaker 3: these moving parts we've got to consider. And also your
21:17
Speaker 3: spending will change, your family needs will change. Maybe you
21:20
Speaker 3: want a gift part for a house deposit for the kids.
21:23
Speaker 3: There's so many moving parts. I think you're going to
21:25
Speaker 3: need to construct some sort of financial plan. Perhaps maybe
21:28
Speaker 3: in the show notes if you allow as we can
21:30
Speaker 3: put some links to some resources. A financial plan is
21:34
Speaker 3: better than none. And what your effects are going to
21:36
Speaker 3: need to do is you're going to need to look
21:37
Speaker 3: at your different income sources. So we know that you'll
21:39
Speaker 3: have your state pension. You should check if you're entitled
21:42
Speaker 3: to a full state pension. So go on check state
21:44
Speaker 3: pension forecast, to check your national insurance record, and then
21:47
Speaker 3: we need to really get intentional about your pension planning.
21:51
Speaker 3: So have you got to find benefit schemes, when do
21:54
Speaker 3: they kick in? What's the impact if you take them earlier?
21:58
Speaker 3: And you can ask the schemes for things like that,
22:00
Speaker 3: what are your underlying investments with the pensions? What are
22:03
Speaker 3: your pensions? And isis which are you going to draw
22:05
Speaker 3: down bit by bit. One of the things I'm doing
22:08
Speaker 3: for my kind of clients with a little bit more
22:10
Speaker 3: money is actually we're being much more thoughtful in relation
22:13
Speaker 3: to doing things like when they come to retire, maybe
22:16
Speaker 3: even using their full basic rate band, because if they're
22:19
Speaker 3: using their full basic rate band, actually when you compare
22:21
Speaker 3: it to that potential sixty four percent tax example I
22:24
Speaker 3: gave for the legacy, you know it actually can be
22:27
Speaker 3: worthwhile doing that. So it's about looking at your assets
22:31
Speaker 3: and the income streams they can or are potentially going
22:35
Speaker 3: to provide you in retirement. Some people will being draw
22:38
Speaker 3: down where you're drawing down the pot bit by bit.
22:40
Speaker 3: The areas you have to watch out for there is
22:43
Speaker 3: there is a specific risk in retirement called sequence risk.
22:46
Speaker 3: If you're entirely a reliant on your pension pot. That is,
22:49
Speaker 3: it's not just the returns you get over retirement, it's
22:51
Speaker 3: the order of returns that can have a substantial difference.
22:54
Speaker 3: If you're that unfortunate person who retires in the nineteen
22:56
Speaker 3: seventies when we went through the stagflationary period or two
22:59
Speaker 3: thousand and nine, you're going to be in a difficult
23:01
Speaker 3: position because you are drawing down on your pot when
23:04
Speaker 3: the markets are down. So you need to have a
23:07
Speaker 3: look at your expenditure, which is your your life, the
23:10
Speaker 3: cost of your lifestyle. Make sure you increase it with inflation.
23:13
Speaker 3: Don't forget about inflation. I've seen some DIY cashplow plans
23:17
Speaker 3: where people don't include inflation it all. You know, half
23:20
Speaker 3: your spending power over your retirement inflation, so make sure
23:23
Speaker 3: we factor that in charges and so forth. I know
23:26
Speaker 3: that sounds like a lot, It sounds overwhelming. There are
23:28
Speaker 3: templates that can help you start, and you'll have time. Yeah,
23:32
Speaker 3: well do it before, do it before. This is the
23:33
Speaker 3: working activity, I would say, just because going back to
23:36
Speaker 3: Craig's point actually on that it's insightful to do it
23:39
Speaker 3: earlier anyway, because let's say Craig had done this ten
23:42
Speaker 3: years ago and he'd actually realized, do you know what,
23:44
Speaker 3: I think I've got enough? What happens if he had
23:47
Speaker 3: then decided, actually, I'm going to go part time or
23:49
Speaker 3: I'm gonna maybe go on a few more holidays. Wouldn't
23:52
Speaker 3: that be a great result of someone listening to this
23:54
Speaker 3: podcast if they actually ended up living a bit more
23:56
Speaker 3: intentionally today as well. So I don't think there's a
24:00
Speaker 3: there's a point that you can be looking at a
24:02
Speaker 3: cash flow plan for yourself too early. That how much
24:05
Speaker 3: you need one depends on how complex your finances are.
24:09
Speaker 3: I would kind of say similar to it's important to
24:12
Speaker 3: have a budget if you don't have a good handle
24:13
Speaker 3: of your finances. If you have more complex finances, it's
24:16
Speaker 3: good to have a cash flow plan because it's going
24:18
Speaker 3: to need that extra level of kind of scrutiny and check.
24:22
Speaker 3: But yeah, that's what professionals do, and you can certainly
24:24
Speaker 3: emulate it to a degree yourself, which will give you
24:26
Speaker 3: a lot of clarity.
24:27
Speaker 1: Let me ask you both a question, John, I really
24:29
Speaker 1: want your input on this one. So Craig is having
24:33
Speaker 1: trouble spending, maybe a lot of people Craig's Egg are
24:36
Speaker 1: having trouble spending, but is there a moral imperative for
24:42
Speaker 1: them to get out and spend You know, here we
24:45
Speaker 1: are with a sort of stagnating economy. Pubs are in trouble,
24:49
Speaker 1: restaurants are in trouble. All kinds of hospitality are in trouble. Craig,
24:54
Speaker 1: get out there, have dinner out two or three times
24:57
Speaker 1: a week, get down the pub, take a taxi home.
25:00
Speaker 1: Help us all out here. It's been not a moral
25:02
Speaker 1: imperative for people who have the money at this age
25:05
Speaker 1: to get out there and spend it. His children's jobs
25:09
Speaker 1: depend on somebody creating activity and economy. Is that fair, John?
25:15
Speaker 1: I mean I like that approach.
25:17
Speaker 2: I think definitely. Part of the problem is if you've
25:19
Speaker 2: got a saving mindset, then it can some they can
25:22
Speaker 2: somethings feel moralistic and that, oh, you're squandering money. So
25:26
Speaker 2: flipping that around and saying actly, no, you should be
25:29
Speaker 2: supporting your local cafe, you should be supporting your local
25:32
Speaker 2: taxi company. Yeah, I think that makes a lot of sense.
25:35
Speaker 2: And also, at the end of the day, if it
25:39
Speaker 2: helps you feel better, I'll be going out and spending
25:41
Speaker 2: your money. Then that is quite a nice way to
25:43
Speaker 2: reframe it. You know, there's a mischief to it, but
25:46
Speaker 2: it's but yeah, if it helps, that's a good way
25:49
Speaker 2: to think about it.
25:51
Speaker 1: Maybe this is a self help podcast. I don't know, George,
25:54
Speaker 1: what do you think is there a moral imperative for
25:56
Speaker 1: all the people with money to get out of there
25:58
Speaker 1: and have lunch? And by the way, do not take
26:01
Speaker 1: weight loss jabs because if you take weight loss jabs,
26:03
Speaker 1: you will not be spending enough money in the pub.
26:06
Speaker 1: Down with weight loss jabs, up with going out for
26:09
Speaker 1: dinner and drinking. Yeah.
26:11
Speaker 3: I don't know about the moral stuff. I think I
26:13
Speaker 3: think it's a nice add on. I would definitely say yeah,
26:16
Speaker 3: why not because it gets the economy going and if
26:18
Speaker 3: that gives you a push, then amazing. But the phrase
26:22
Speaker 3: expect to give with a warm hand and a cold
26:24
Speaker 3: is probably also true. You know, if there's a way
26:28
Speaker 3: that you want to start giving your money while you
26:30
Speaker 3: can get to see it again, no one's getting out
26:32
Speaker 3: of this alive, so yeah, go for it if you've
26:35
Speaker 3: got the money.
26:36
Speaker 2: Defintely, the gifting there's an interesting one because there's always
26:39
Speaker 2: there's always something that's needed, and if it's you know,
26:43
Speaker 2: an entity if it's something like school fees or starting
26:45
Speaker 2: a pension for you know, maybe your grind kids, that
26:48
Speaker 2: kind of thing. You know that there is always stuff
26:52
Speaker 2: that you can do. So I think yes, the model
26:57
Speaker 2: imperative to spend is good as well.
26:58
Speaker 1: Though, yeah, less worthy, but pretty good, right. I am
27:04
Speaker 1: changing our key phrase on this from no pocket center
27:07
Speaker 1: shroud to no one is getting out of this alive.
27:10
Speaker 1: Thanks for that, George, you will. Thank you very much
27:13
Speaker 1: for coming on today. Thanks for listening to this week's
27:17
Speaker 1: Merin Talks to Your Money. If you like our show,
27:19
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27:22
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Speaker 1: this show and all our shows are always welcome. Our
27:33
Speaker 1: show email is Merrior Money at Bloomberg dot net