Are you preparing enough?
Retirement planning has never been more important, for everyone. A lack of financial planning from the baby boomer generation is resulting in a serious shortfall, for their own retirement and for wealth to pass down. With life expectancy increasing & low returns on investments, is your wealth going to disappear too soon?
This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.
A mortgage free home and £50k per year
Very broadly speaking, those baby boomers that did give an element of importance to their financial future could be aspiring towards retiring at 65 with a mortgage-free property and £50k per year income from pensions and other accumulated investments.
When they started to save for retirement, the prospect of earning £50k per year when they retired would have perhaps required an estimated £1 million retirement fund.
However, those people now entering retirement with a £1 million retirement fund are likely to earn closer to £20k per year, due to low interest rates and negative bond yields, something that was not catered for, or anticipated.
Eroding the inheritance for future generations
Given this scenario, to support their retirement plan, and to keep up with their desired lifestyle, means that any capital wealth could deteriorate at an estimated £30k per year.
Retirees are running the risk of drawing-down all their capital, possibly even within their lifetime. A £1 million portfolio, drawn-down at £50k per annum means in 20 years the pot is empty.
This not only means that there is no hope of passing down capital wealth to the next generation, but also means that with life expectancy being circa 84 for men and 86 for women, there is little room for manoeuvre if this comes to reality.
Property price inflation over the past few decades could be a life saver, for those who can downsize and release equity in their current property to utilise through retirement.
Those that also managed purchase investment properties are likely to be in a better position.
Why Generation X need to plan for retirement now
After all is said and done, Generation X could be in an even worse position than the baby boomers come retirement, unless precise steps are taken to ensure otherwise.
Whilst property investment could still mean equity can be drawn as part of a retirement plan, the key is to get onto the ladder early, which is a struggle for young people today as house prices are too high for them to raise the required deposit.
Additionally, to earn a retirement living of £50k per annum using a hypothetical situation that interest rates remain at 2 percent, means accumulating around £2.5 million between say age 35 and 65.
This really is a case of starting to plan now and consider all options to avoid financial failure in the future.
Need help with retirement planning? Speak to Darren
Dental & Medical Financial Services are specialists in helping doctors and dentists make gradual, solid financial plans through regular assessments. Call to speak with Darren.
Tel: 01403 780 770