Retirement planning is complicated largely because you’re making decisions based on unknown factors—namely, how long you’ll live and how healthy you’ll be. The results of Morningstar’s final poll for Financial Planning Week are now in, and one of the key messages is that the majority (60%) claims their pension and/or savings do provide them with the retired lifestyle that they had hoped for.
2008 hit everyone hard and, although we have experienced a bumper second quarter in 2009, many individuals will have lost a substantial amount of money during the downturn. This no doubt goes some way to explaining why just 50% of poll participants say their previous financial decisions have proven adequate in securing long-term goals.
“It is hardly surprising that one year after the start of one of the most severe financial periods that we have witnessed in the UK for many a decade, those individuals polled today are suggesting their savings will not support their desired lifestyle,” comments Barry Horner, CEO of Paradigm Norton and President of the Institute of Financial Planning. “What this suggests to me is the need to constantly monitor the adequacy of an individual’s current provision and see whether, through professional help and guidance, savings thus far accumulated could work a bit harder for them.”
“So many people fail to review the savings and pensions that they have already established in the light of changes to legislation and other prevailing economic conditions, Horner continues. “A regular heath check is well worth pursuing in my view.”
We also asked whether you are willing to change your goals or investment strategy to accommodate changes in circumstance and 67% said they were. “It is important to have long term goals but these need to be thoughtfully budgeted for—expectations can then be managed thus avoiding disappointment and the need to change goals later in life,” says Stephen Willis, Certified Financial Planner with Piercefield Asset Management. “It is probably the case for some that they have to change their goals or investment strategy rather than being reluctant to do so.”
It appears that a lot of people are having to change their lifestyles or are expecting to work longer than they previously thought they would to make up for the losses of 2008—it will take more than a year to recoup these.
Still, Barry Horner is encouraged that more individuals are actually starting to plan for the future, though he fears Morningstar’s poll results point to many individuals’ dreams of a particular lifestyle of standard of living being shattered in the future.
“We can easily get lulled into a false sense of security when we see a particular asset class—property for example—only ever heading in an upwards direction. Recent events have been a timely reminder that investments do go down as well as up…and this dose of reality brings us back to a boring but appropriate strategy of spreading our investments across a variety of funds, savings institutions, etc.”
Today’s poll also revealed that well over a third (39%) do not have an up-to-date Will in place, which is particularly concerning given that this final day of Financial Planning Week was aimed at those either in or fast approaching retirement. “I find it very surprising that with the levels of wealth that many individuals have accumulated, they fail to invest a fraction of these savings/net worth in appropriately directing these resources beyond the grave, says Horner.”
“Maybe it’s a failure of the financial planning or legal professions that many people who die intestate (without a Will) do not realise that their worldly wealth does not all go to their nearest and dearest,” Horner concludes.
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