A HAPPY RETIREMENT?

What is the key to a happy retirement?

The answer to this question is simpler than you might think and for most people is something like 2/3rds of current earnings to sustain them in retirement.

Now let’s look at how this income could be achieved.

• Everyone will get something from the state
• Old age pension
• Occupational/personal pension

For the vast majority of people these three basic components will come no-where near providing that 2/3rds of current income but it gets much much worse.

You see up until now you have been thinking about your current income, not your income when you retire. Assuming you currently earn £30,000, and are aged 40 (in 2008) then by the time you are 60 (2028) your income will have risen to £79,598  assuming an increase of only 5% per annum. This would give you a 2/3rd's pension of £52,534 per annum. This sounds great but there is something everyone forgets about.

Inflation: Always creeping up behind you!

Inflation is mostly forgotten when making long financial plans but forgetting to take inflation into account would be like forgetting to take into count how much fuel you needed to fly to your destination. Get this calculation wrong and there is a good chance of doing the financial equivalent of crashing into the Atlantic Ocean mid flight.

What this means is that not only do you have to factor in your increased income up to retirement, you also have to factor in inflation from the time you retire to the time you die. If you retire at 60 and live until 80 what this means is that your 2/3rds pension of £52,534 at the age of 60 (2028) would be £29,086 by age 80 (2048) assuming inflation over the period at 3%. Now 3% may seem high at the moment but historically it is very low, if you take a more realistic average inflation of 5% over the period then the figure at age 80 (2048) would be just £19,799.

Oh, and there is another problem!

Here’s another interesting question, what would you have to do in order to give yourself a fair chance of giving yourself this kind of income using a personal pension?

Well to start with, if you are 40 you might as well forget it, in order to have a fighting chance you needed to start a long time ago. Because personal pensions usually rely in investment returns from the stock market, it is impossible to answer this question precisely but we can give you a guide to think about.

Based on a contribution of 15% of your earnings starting from age 20 until retirement at age 60 in other words 40 years of contributions, you might give yourself a fair chance of accruing the necessary fund which could then be used to purchase the index linked annuity you would need to give you your inflation linked 2/3rds pension income.

For every year you take off the 40 years you will reduce your overall pot not by 1/40^th but by the full return on the full fund you would have accrued at the end. So assuming an average of 6% growth one years delay would mean a 6% reduction in your total pot and so on compounded for each delayed year! Making up this kind of shortfall quickly becomes unviable; hence anyone over the age of about 25 has virtually no chance of achieving their 2/3rds pension needs in this way.

 So what is the solution?

Well you would expect us to say yes but consider this scenario for yourself. Ignoring the glamour of becoming a property tycoon for a moment, think about owning five average properties with the mortgages all paid off. Assuming a net rent of £500 per month after all expenses and maintenance this would yield an income of £30,000 per annum in real terms. We say in real terms because that £500 is likely to rise with inflation so inflation becomes a neutral factor.

Now we are not belittling the task of acquiring those five properties, quite the reverse, our core proposition rests on us being able to help you to do so more effectively than if you try and go it alone.

Now you have the cold facts without window dressing it is really up to you what you do next. You can procrastinate, plead poverty or just accept poverty as the inevitable outcome of a 40 year working career. Or you can do something positive to change your life in retirement right now by enquiring about our services.

You may not be in a position to get started now, or you may be in a position to acquire just one property, or a complete portfolio, it really does not matter because the relationship we want to establish with you is a long term one, one which lasts right up until the day you retire, a relationship which is solely aimed at ensuring you achieve that 2/3rds of your income as a minimum and hopefully a lot more.

Kind regards

Choices Acquisitions and Investments