While dedicating a lifetime to saving for retirement is one thing, making those savings last can pose a completely different challenge!
Tip no.1 – Beware of Inflation
Don’t leave excessive amounts of money shrivelling up in bank and building society accounts where they have absolutely no hope of maintaining value over 5 or more years. Savings have the very real risk that they’ll be able to buy less with the same £10 note in 2030 than they could if we spent it today – that’s a loss by anyone’s standards!
Put simply £10,000 left in the bank last year would be worth around £1,000 less this year. Learning how to invest over the long term is the best way to beat inflation.
Tip no.2 – Have an Emergency Fund
Always have an emergency fund that protects you from having to access investments when markets are low. Markets have always recovered, but you need to be patient, which means have an alternative pot to call on if needs be. The rule of thumb here is to have an emergency fund big enough to cover 6 months of committed spending – so food, bills and contractual payments – not holidays and takeaways! Also anything you need to spend in the next 5 years that is not covered by income. If you keep more than this in cash, it’s a big mistake and you are getting poorer – see the prior point about inflation.
Tip no.3 – Spend Your Pension Last
Pension pots have a little-known superpower. If you die before you’ve spent them all, you can pass them on to whoever you choose and it won’t figure in the Inheritance Tax calculation.
This is why I think it makes sense to spend your pension last! They’re invested, they grow tax-free, they’re super accessible once you reach 55, but they’re also a great contingency fund that is the most tax-efficient asset to die still owning – who knew?!
Tip no.4 – Find a Way to Keep Earning
Most people don’t just reach R day and go from full-time work to fully retired. Lots of us throttle back in our late 50s but continue to earn in some capacity or other long into retirement.
Often we monetise a hobby, a honed skill or our experience and expertise. We discover we can charge well for a few hours of our time because we are good – given the decades of practice behind us. Maybe you can line up an earner that will continue to deliver for a couple of decades into retirement?
Tip no.5 – Slow Down and Smile – You’ve waited a lifetime for this after all.
Early retirement – when you have pent-up travel lust, loads of energy and a long bucket list – can be pricey. However, once we get used to retirement freedom and have enjoyed ourselves with some exhausting overindulgence, things slow down to a more sustainable pace. Travel loses its appeal to swollen ankles and expensive travel insurance terms now we have so much to declare on the medical list! Making a nice meal at home now we have time to cook rather than eating out and half a bottle of wine a night will do, given the heartburn consequences of quaffing the lot!
As we become less agile and need more paid help around the house, maybe even some medical care, things get expensive again. Plan a smile shape to your spending and enjoy yourself while you can, but keep a contingency fund to help when needed – see point 2 on having an emergency fund and point 3 on making the most of your pension’s earning potential for this!
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