How should business owners and senior executives plan their retirement?
Lyndon Massey, Associate Director, Personal Finance Planning, Smith and Williamson:
Retirement planning itself when the baby boomers were children didn't really exist, it was a sort of retire and die mentality. Retirement was probably five to ten years but now they're coming up for retirement it's a period of maybe twenty to twenty-five years, it's not a time when you can live with the old style retirement when you can rest and watch TV, it's now a time when people want to work, revolutionise and change their lifestyle, travel and rest and perhaps alternate. For the business owner phasing into retirement, this is probably going to be quite a crucial issue and certainly for executives who are living stressed lifestyles, who have a lot of their social network within the business, a lot of their self-esteem comes from the business. Retirement can be, apart from the financial aspects, a really important and stressful time. So I think it's important that business owners realise that it's not just about climbing the mountain but it is also about getting down again once they've got to the peak.
People coming up to retirement will be looking at how they assess their financial position and look at their options for their future income and actually engaging with an advisor itself is difficult. It is a time that you need to trust an advisor and since 2006 the financial services industry itself has been going through huge change and regulatory pressure. Commission is being outlawed so there's a need to charge fees now for what you do and to professionalise and the quality of advice is really essential at that stage.
What can we expect when planning retirement?
The key is to realise that for your long term wealth and your pension planning, you really need to grasp and take control of the assets you have. A pension is just a capital lump sum, so taking control of that and assessing what you have and looking at your options for investment. Now the technology is there, the market is there for you to really do that and that is key. Then looking at risks at retirement, you are likely to live longer than you expect, you are likely to face a lot of changes during that time. Inflation is likely to see your capital erode over time. You are not facing five or ten years, it's twenty to thirty years and there will be spikes in inflation during that time. Health issues and the pressure that will put on your finances again is an issue that you need to take on board. So looking at those issues is really important now, I think more than ever before.
What is your key tip for a good retirement?
Build a financial plan for your personal life. I've met a lot of business owners that have had their business financial plan in good shape but their personal financial plan has taken a back seat. They've not really paid attention to their financial goals and made sure their planning stays on-track and typically we look at investments that we're well sorted ten years ago or five years ago but they haven't really kept up to date with their needs and their attitudes and the changing environment. A plan that takes into account long term inflation, the risks that you're facing in your business. Make sure that your eggs aren't too much in one basket as much as possible, that you're making the most of tax breaks, not just in pensions but right across the board. There are various tax breaks that are available and that are accessible. But mainly take account of view, there is never a good time to build a financial plan, it's always something that we tend to defer and procrastinate on, so do take action and take action quickly and I don't think it's something that you will regret because time and value of money is just so powerful.
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