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Talking Retirement: Second key question

Part 3 of our thought provoking report 'Redefining Retirement: Pensions Freedoms. Pensions Future'.

Question 2 - Inflation Risk

How much income do I need for the retirement I want?

Having identified your clients’ retirement dilemmas, discover the second of the four key questions to address them successfully.

One of the biggest questions we know advisers ask is: ‘what are you planning to do with the rest of your life?’ Assuming the client is fortunate enough to have the vaguest idea of their chosen lifestyle in retirement, they might think they’re on the way to identifying the income pattern they will need.

If only it were that simple! As you know, many clients find it incredibly hard to understand what they actually might need. As stated earlier, visualising a long-term plan is hard enough on its own without having to work out what elements of the plan are going to cost along the way.

Smiling all the way

The profile of retirement income can be characterised by the ‘smile’ graph below, tracing the varying requirements at different stages of the client’s journey. It shows how expenditure is typically higher in the early years to fund a more active lifestyle, and at the later stages when the cost of care can become a significant factor.

Retirement smile

Expenditure categories

A surprising number of people approaching retirement are flummoxed by the complexity of working out exactly what they will need in terms of an income once they have retired. Many decisions and conclusions made by clients are likely to favour the near future whilst ignoring the long term.

Before you begin to ask your clients to total up the amount of money they will require for the rest of their lives to sustain their standard of living (which is the hardest question of all to answer) it feels like the right time to express expenditure differently.

By breaking down costs into these manageable categories, it becomes easier for the client to visualise both what they need and the potential consequences of trading off one expenditure for another.Hierarchy of income

Next article - Is my money going to run out… before I do? 

The Redefining Retirement report covers key conversations and opportunities for you to help guide clients through the evolving retirement landscape. Visit our website to find out more about our new retirement proposition, IncomeSelect.

For financial advisers only. Not to be relied on by consumers.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth or Old Mutual International's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. We cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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