As you enter retirement, you want to set yourself to eliminate as much of the day-to-day worry and bother about money as you can. Ideally, you want to set things up so that you spend as little time thinking about the practical application of your finances as possible.
The best example I have ever seen of this is a client who came to me just a couple of years ago. She had been referred to me by another adviser who was now retired.
The client is a lady in her mid-70s and she keeps – I kid you not – a quarter of a million quid in her instant access savings account, getting next no interest. I know what you’re thinking – this makes no financial sense whatsoever! Even if she put £50k of it in Premium Bonds, she’d likely do better than that.
When I first met her, I tried to start talking about alternatives but she didn’t give me a chance. She looked me right in the eyes and said ‘That is my sleep-at-night money. It never leaves that account.’ Now, I was being asked to advise on the investment of the other half of her life savings, the £250k or so that was invested with the help of the now-retired adviser.
My client said to me that she was happy to have the invested portion put to work, because she knew that the money in the bank was all she would need for the rest of her life. For her, the peace of mind brought by having such a crazy amount of money in the bank, meant she didn’t give the invested portion a moment’s thought!
That’s a good lesson, if a bit of an extreme one! How can you set things up so that you don’t think much about your finances day-to-day? I still don’t recommend quite that much money in the bank though!
Retirement is a Long Time
When planning for retirement, we’re hopefully talking about planning for a long time. 30 years ideally, if not longer. It’s important to retain that context when planning, and particularly in the early stages.
I have one client couple who have just retired and now their pensions and investments have been hit by the market falls triggered by coronavirus. We jumped on a planning call and they’re going to be fine. They have set things up well, with lower risk investments for their nearer-term money and more adventurous investment for money they won’t be touching for ages.
Another client couple have been dithering about investing for ages. They retired back to the UK in their mid-70s and are now in their early 80s. They had a lump sum from a source I can’t remember, and I came up with a plan for investing it six years ago, but so far, they have only put in about a quarter of what they were planning to.
For ages they were worried that the market was too high and was due a correction. They were right about that, but now the market has corrected, they’re worried about investing. They’re both hale and hearty and they don’t need the money to hand. They should have invested six years ago – they would still have been in profit even after the recent falls.
Retirement is a long time, and will generally give your money time to recover from any market falls. Try not to think short-term when it comes to your money. You might be in the last phase of your life, but all being well, it’ll still be a multi-decade phase – you should invest accordingly.
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