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Thinking about Retirement – Why you need a Financial Plan

Author
Phil Farrelly QFA RPA SIA CFP
Certified Financial Planner | Mason Wealth Management

If you are thinking about retiring you really should have a financial plan.  Without a plan and assuming that you do not have the luxury of a Defined Benefit pension scheme you really are in a vulnerable position.     With the impact of inflation and the fact that people are living longer, you run the risk of running out of money

 

The financial advice business has moved to a better place in recent years.  In the past, people were sold pensions and Life policies by commission-only salespeople.  There was very little follow up and there was little or no effort made to try and ‘ bring everything together’.

 

Clients had no understanding of what it would all mean in terms of retirement funding.    This resulted in people having a variety of policies, generally held with different insurance companies, with no particular structure or strategy.

 

After 30 years in the financial planning business we now know that if clients have a financial plan and follow the rules of a simple investment process, they generally will receive better and more predictable investment outcomes.    We teach this investment process to all our clients.

 

In order to assist us, we use a cash flow forecasting system called Voyant-   see below.

 

 

This particular client who is now 57 will run out of money at age 87 if he retires at 61.  The challenge for us here is to find a strategy to ensure that he does not run out of money in retirement.    The big risk for retiree’s nowadays is the risk that they outlive their fund or that the insidious effect of inflation erodes it.

 

 

In the charts above, we compare the previous plan where the client had insufficient funds with an updated plan where the client increases his annual savings prior to retirement.   Quite simply, the client can now retire knowing that they should have sufficient funds.

 

A financial plan that incorporates cashflow forecasting can provide answers to questions like these –

  • Can I retire earlier than 60?
  • Can I access my pension benefits at 50?
  • Will my pension fund be sufficient to maintain my desired lifestyle?
  • Will I run out of money in retirement?
  • Do I need to increase my pension contribution now?
  • How much risk do I need to take with my pension fund?
  • What rate of return do I need to achieve on my pension policy?

 

How much does it cost?

Unlike most advisers that are paid commission once they sell a policy, we are fee-based advisers.   We charge €250 per hour.

What type of clients are getting great value from this service

  1. Business owners and senior employees over 40 and in control of their own income
  2. People with a salary in excess of €50,000
  3. People who love working but realise that life is for living and not a rehearsal.  Wouldn’t it be great to have the CHOICE whether to keep working or to retire early?  We can look at the numbers and calculate, with reasonable certainty what age you will become Financially independent
  4. In fact, people just like you who take their work seriously, but also have another life that is just as important.

Finally, we all know that the investment markets are cyclical – temporary declines in value do happen.    In times of uncertainty, you simply act on the plan – rather than reacting to the markets.   This is the single most important rule for successful investing.