I would like to share a riddle with you.
I can bring tears to your eyes; resurrect the dead, make you smile, and reverse time. I form in an instant, but I last a lifetime. What am I?…
It’s well known that, for a generation (or two) of people, spending their hard-earned and saved money is a challenge. Many people from our parents to so-called industry experts have, for years, told us to be frugal, vigilant and save for that rainy day.
Whilst they are indeed wise words, they, unfortunately, have a massive impact when people plan for and eventually retire (what we like to call ‘being financially independent’).
Saving can be vigilant but that doesn’t create memories: what we spend our savings on does!
Telling people to spend their money has not traditionally been on the remit of a typical IFA. The sound advice has always been to save into a pension or ISA. Now, the reason for suggesting that clients spend deserves a blog of its own but, in truth, the reasons for it are somewhat very selfish and to the extreme negligent on behalf of that typical IFA.
Putting a prudent plan in place to show clients that they can spend their money on stuff they want to do in retirement, whilst being confident that their savings can withstand shocks and last them until they die, is a skill that a great Lifestyle Financial Planner brings to the table. We help clients to create lifetime memories.
When it comes to traditional spending habits most people believe that they need to make sure that they have enough in their savings pot to spend their money like this:
When, in fact, what they need to plan for is to spend money like this:
They way that people should spend their money should be linked to their health, wellbeing, desire, dreams, aspirations, goals and wealth. This will typically mean that, after realising your financial independence, you should budget to spend your money the hardest within the first 10/15 years. This, for us, is the main structure for our three phases of spending:
In general, people will want to travel longer distances and do more active things when their health, wellbeing and desire are at their highest levels, typically at the earliest stage of retirement. For most people, their biggest dreams and aspirations are such that they should not wait for tomorrow as tomorrow may never come. So, typically this needs to happen at early stages.
We typically see this stage as a ten-year window that will take most client to their early 70s.
2. Slowing Down
As we get older our health and wellbeing will deteriorate along with our desire. There may be several things that we still want to achieve but these will typically not involve long hours sitting on a plane or cruise ship and will include things a bit less challenging and a bit lower down on our bucket list.
We typically see this stage as a five to ten-year window that will take most clients into their early 80s.
3. Later Life
We will all get to the stage where we will slow down and our spending will be to primarily cover our everyday living costs. Our health may still be OK, but our desire will not be there, and we would have hopefully ticked off many of the things on our bucket list by the time we get here!
Case study: Pat and Peter
I recently had the privilege of attending Pat and Pete’s diamond (60 year) wedding anniversary. I loved spending time with them both, talking about their life.
One thing they both said to me really stuck in my mind. They said: “Dan, I’m so happy that we spent our money in our 60s and 70s as I struggle to walk out of my front door now without getting out of breath.”
They are both in reasonable health but are at a point that they only can do the basics well.
They have both lived a wonderful life and they told me tales of trips abroad, excursions out with friends, and time spent in their favourite places creating memories with their daughter and grandkids.
We come across many clients that have saved for that rainy day, but they have got into their late 70s/early 80s and unfortunately, it hasn’t rained hard enough for them to use it! All the attributes they need to enjoy their money have disappeared and at this point, all they are going to do is try to give it away before a tax bill of 40% awaits.
When we have a robust Financial Plan, we can create a vision that will allow us to ‘front load’ our spending. We need to spend our money on the things that we want to whilst we have our health, desire, wellness and wealth on our side. Any of these can be taken away from us in a heartbeat!
Having a robust plan in place that is reviewed regularly means that we can have confidence that we can spend our money whilst not fearing of running out or dying with too much. We can have total peace of mind that we can spend our money through the three spending phases in a way that means we get the most from our time and hard-earned savings and ensuring we create memories not only for us but for our loved ones. This means that we will live the extraordinary life we deserve.