Retirement is not what it used to be. Nor is retirement planning
For those approaching retirement today, the world of work has changed enormously since leaving school. Concepts many people grew up with, such as jobs for life, working nine to five and the 40-hour week, may now seem like relics from ancient history.
For Advisers, this means that planning your clients’ retirement is about much more than pensions and annuities. It presents an opportunity for you to build a reputation for listening and collaborating with them on the kind of lives they wish to lead when they retire – and to offer them appropriate financial solutions.
Their dreams are probably very different from those of their parents. That’s because many people reach retirement today with a long, healthy life ahead of them. Gone are the days when average life expectancies mean that retirement might last five or ten years. The average baby boomer (55-73 year old) can reasonably expect to live for decades after retirement – so it’s no surprise that very few are ready for the armchair and slippers.
That’s a good thing, as it’s not unusual for people to find a cliff-edge retirement difficult to deal with. In fact, a recent study published found that retired people were twice as likely to feel depressed as those who were still workingi. Harvard’s School of Public Health also found that those who retire completely had a 40% greater chance of a heart attack than peers who continued working.
Your clients will need to understand the various fund management options available to maximise their portfolios’ values throughout retirement, alongside the all-important drawdown timing.
So clearly, the future of retirement will be different from the past – and there will be more for clients to consider. They will need to understand the various fund management options available to maximise their portfolios’ values throughout retirement, alongside the all-important drawdown timing. As an Adviser, you can help them navigate this potentially complex stage of life – and help them look forward to a long and active retirement.
The financial implications of all this flexibility may ultimately govern the rate at which individuals can phase out their pre-retirement job. So let’s look in more detail at the various ways in which your clients might retire.
The government banned compulsory retirement ages in 2011 and in the UK, roughly half of all adults now intend to work past the state pension age. While a fifth would like to earn a living from a hobby or by starting their own businessii, more than a quarter would prefer to reduce their hours while staying in their current job.
This often works for the employer too, as many are reluctant to lose valuable staff and their wealth of experience and contacts. As a result, they are often amenable to reducing the hours worked by retiring staff, or giving them advisory roles that demand less of their time.
For your clients, arrangements like this can offer the best of both worlds: they retain some of the income, status, routine and social network that comes with a job, while also enabling them to enjoy more free time. This presents an opportunity to review their expected income in retirement and to help them ascertain exactly how much of a reduction in pay they can afford. This information will be vital in their negotiations with their employer.
Enabling that entrepreneurial streak
For many, retirement represents an opportunity to start a business – and there is strong evidence that business is something that people in their fifties and beyond are very good at. Nearly 25% of workers aged 50 and over are self-employed. And when you move to workers aged 70 and over, the number that are self-employed jumps to 50%.iii But perhaps more impressively, according to Age UK, more than 70% of businesses started by people in their fifties survive for at least five years. This compared with just over a quarter of those started by younger entrepreneurs.
While it might be outside your remit to advise your clients on exactly what kind of business to start, an informal conversation about the future could lead to a more serious conversation about revenue and profit expectations, sources of funding and asset structures that might be appropriate for the years ahead.
Charity begins after work
Of course, many retirees are affluent and don’t need to work. Indeed, one in five are millionaires, according to the Office of National Statistics.
In that case, they might choose to give something back to society. According to the UK Civil Society Almanac, more than 20 million people in the UK currently volunteer through organisations and formal groups. iv
For those who wish to focus on charitable work, however, there will almost always be financial implications. As an Adviser, there is a great deal you can do to ensure that these clients have the financial support they need to fully dedicate their resources to their chosen cause – starting with reviewing their portfolios and helping them to predict their income accurately.
A pivotal moment for your clients
Retirement clearly offers much more than it did just a generation ago. But with so much on offer for many of your clients, it is vital that they understand the options available, alongside the financial implications – whether they choose to keep working, to start a new business or to pursue charitable activities.
The opportunities for work-life balance, satisfaction, and financial security can only truly be embraced with the appropriate financial structures in place at retirement and beyond – and, of course, the right drawdown strategy. Which means that not only is imminent retirement planning critical for your clients, but it is a point at which insightful financial advice can make a real difference to their lives.
A modern approach to retirement will therefore enable you and your business to achieve more than ever before.
i Journal of Population Ageing
ii Prudential, June 2018
iii Survey by Age UK
iv UK Civil Society Almanac 2019