Financial Planning

The ‘Truth’ about saving for retirement

11th March 2020

The Author: Craig Gardner
Craig works in the Madrid office as a Financial Planner and is responsible for helping clients make better financial decisions.

Regardless of whether you’re nearing retirement or just starting to plan for your future, knowing how much you will need to retire comfortably can be challenging.

There are various factors to consider such as your ideal retirement age and what exactly a comfortable retirement means to you. Does it involve travelling the world, staying in 5-star accommodation, or retiring early and living a more modest lifestyle? Whatever your decision, you need to plan ahead and be truthful about what a good retirement means.

Costs of living a comfortable retirement

Don’t fall into the trap of thinking that retirement is free of expenses; you will want to maintain a certain standard of living. You will need to factor in costs for things like household goods, private health insurance and perhaps some travel. You may have paid off your mortgage but as houses age they often need more repairs and maintenance.

It can be difficult to estimate future living costs, especially when your lifestyle may change drastically heading into retirement. Will you have elderly parents to care for or ‘boomerang kids’ to support?

Also, keep in mind the way you spend at the beginning of your retirement is likely to be very different from how you spend later on. Initially, you may wish to spend more money on travelling or pursuing hobbies but later on you’re likely to need to spend more on health-related or medical expenses.

Failure to ask these questions, and anticipate the answers, is what can lead to a retirement shortfall even when your initial net worth statements looked strong. You can see from a sample projection below that Craig and Ana are expected to have nearly one million euros in capital at age 60.

At first glance, this would appear enough to see them through to the end of retirement according to the figures in the table below.

However, when running their returns and expenditures through our planning software, it became clear that their current situation will leave them short financially in their retirement. The situation is clearly highlighted in the graph below.

retirement shortfall planningretirement planning running out truth

With this in mind it begs the question: how can you build a realistic picture of your desired financial future? The short answer is, with Lifestyle Financial Planning and powerful cash flow modelling.

Using Truth to remove ambiguity

Lifestyle Financial Planning helps you to answer important questions about your future, such as:

  • When can I retire?
  • Will I run out of money?
  • Should I cash in my pension?

There are also more difficult questions to consider such as:

  • What will happen when my parents pass away?
  • What do I stand to inherit?
  • Will I be responsible for my ageing parents?

The truth is that we avoid these questions when it comes to planning our retirement. None of us like to face the thought of losing loved ones, family members becoming ill or thinking about how much inheritance we might gain. But it’s much more reassuring to be prepared now for any situation that may arise later in life.

We know that our life journey rarely goes exactly as planned

Thinking about the future, however, is still an ambiguous concept for most people. It’s almost impossible to visualise. Numbers on a page can be difficult to grasp.

At United Advisers Group, we use Truth Software. This is the most advanced cash modelling software on the market and helps you visualise your financial future with easy-to-understand charts and graphs. This is a much more accurate representation of how much really is enough for you, and your retirement plans, than simply using the 4% rule or another base calculation.

Cash flow modelling paints a compelling picture

The power of cash flow modelling is that there is no ambiguity. It deals in reality and provides a clear picture of your financial future based on the data you provide through a ‘fact find’.

truth fact find

Data includes everything from income and expenses to education planning and pensions. While it’s called a fact find, we also ask you about your goals, dreams and objectives. This is another unique feature of using the Truth software as part of your retirement planning: it combines the hard data with your aspirations.

From this starting point, we can create a net worth statement which is a complete list of your assets and liabilities. We will also generate accurate cash flow forecasts and predict likely returns on your savings and investments. All of this helps to paint a compelling picture to help achieve your retirement goals.

The more accurate data you provide during the fact find, the more realistic the scenarios that can be generated from the software. And that’s where the real power lies: in creating robust scenarios to help you model your desired future lifestyle.

financial planning retirement

You will be able to see how small changes to your situation can have big financial impacts. The power of Truth is that you can now make informed decisions about your future based on accurate projections.

Find out more

Our goal at UAG is to help you develop your financial awareness and to create solutions for your financial future.

If you’re interested in knowing more or even meeting to start the process with your own fact find, please get in touch.