In the first episode of The Retirement Gym, Head of MHA Carpenter Box Wealth Management Roy Thompson talks with Senior Financial Planning Manager Gill Lynes about making a budget plan to better prepare you for your spending requirements in retirement.
In the first episode of The Retirement Gym, Head of MHA Carpenter Box Wealth Management Roy Thompson talks with Senior Financial Planning Manager Gill Lynes about making a budget plan to better prepare you for your spending requirements in retirement.
Roy Thompson: 0:01
So welcome to the Retirement Gym. This is the podcast that aims to help you make good retirement decisions whilst you're saving for retirement and how to spend money when you're actually in retirement.
Roy Thompson: 0:15
Hi, my name's Roy Thompson. I head up MHA Carpenter Box Wealth Management, we're a firm of Independent Financial Advisors. The Retirement Gym Podcast series is aimed at helping people make retirement decisions.
Roy Thompson: 0:29
In this series what I want to look at is budgeting, how important that is as you move into or approach retirement and into retirement. It's the time of your life when perhaps you're losing a regular income, perhaps from employment or from your own business. And you're switching to relying upon your own savings, be that money in the bank, buy to let property, pension arrangements or quite commonly a mixture of all of those. Retirement is definitely changing. We've got more people living longer. Certainly, the Office of National Statistics suggests that a woman aged 65 has about a 7.5% chance of reaching 100. There's some recent press around life expectancy not extending or not continuing to rise at quite the same rate, but it's still fairly sure that retirement is likely to be somewhere between 30 and 40 years. It's a huge swathe of time during which you'll have many social issues to consider. sort of How do you pass money onto Children if you've got Children? What about cost of care? That's a big political issue, certainly at the moment. So what we have is a really important phase of our life. One of the things I find from my job on a day to day basis is that a lot of people approach retirement with the concept that they need to have some money behind them. But they don't know how much. Part of the reason they don't know how much they need to have behind them is because they're not even aware of what they're spending habits are. So budgeting, in my opinion, is really, really important. I've got with me today, one of my colleagues, Gill Lynes. Gill is a financial advisor and has been in the industry for some 20 years plus now, so lots and lots of experience. She deals with a lot with people in later life. So good morning, Gill. Do you want to tell us a little bit about the sort of work that you do on a day to day basis?
Gill Lynes: 2:32
Yeah, well, my specialism is helping clients in later life and later life we call from 55 onwards, really. So I help people who are coming up to retirement, people who are in retirement, with things that they're commonly concerned about. So one of the major things that people worry about is, are they going to have enough money, are they're going to run out of money? Going through retirement people might be thinking can they afford to give sums of money away, perhaps to children and grandchildren. And then in later, later life, which we would deem to be from 80 years onwards, then as you were saying, matters such as care fees planning and perhaps, if you're lucky enough to have a problem with inheritance tax, that might be a concern as well. So that's what I do in a day to day basis.
Roy Thompson: 3:22
So that's a huge range of topics and different people that you come across on a regular basis, which I guess, sort of, you know, with a number of years of experience with dealing with that you see lots of different views and approaches to things.
Gill Lynes: 3:34
Yeah, and it's interesting. As you were saying, some people have really no idea at all of what they're going to be spending in retirement or even what they're spending now. So quite often I get asked how much should I be saving into a pension and my answer is always what you can afford to save into pension. There's been various surveys done, I think a lot of people coming up to retirement might really have no idea of what it costs just to run a house. So various surveys have suggested that about £18,000 is typical of what you would spend just on things sort of mandatory expenditure. So heating and eating, that kind of thing.
Roy Thompson: 4:18
Yeah, I guess that's right. You know, I know from again from the work that I do is that people's expectations are very, very different. So certainly got clients who have not what you would call an astronomical income, but they're perfectly happy, they're very content with their lives and I've got other people who have got what I would call quite a high level of income and they're still worried that they haven't got enough. So personal circumstances I think are a very big factor as well.
Gill Lynes: 4:47
That's very true, solvency is a state of mind. Definitely. But one of the surveys that I was looking at, preparing for our chat today was implying that £18,000 per household would cover your expenditure, your essential expenditure. That would rise to about £26,000 if you throw in some holidays. So to Europe maybe and if you were thinking about going further afield and perhaps having a new car every five years, then you'd be looking at around £40,000 a year. And people don't seem to have a concept of how much savings they would need to generate that kind of income. And I don't know if that's something that that you'd agree with.
Roy Thompson: 5:30
Definitely. And I think obviously, when you start to look at studies and you've referenced £18,000. It's quite interesting to me because more often than not that will look at your costs for as you have said there running the home. But of course what you have to consider is if you're retired, then it is like having a permanent weekend. So invariably most couples or individuals do quite like to go and do social things whether that be following bands, music, playing sport, going out for dinner, going away as you've referenced there, so costs that you might call discretionary costs can be much higher as you move into retirement. The adage that I quite often get is well, you know, when I've retired, the kids will be gone so my outgoings would be an awful lot less. And actually the reality is yes, the kids will be gone but you might have grandkids that you want to spend money on. You might want to do more with your time, all of which costs money.
Gill Lynes: 6:27
Yeah I mean the typical pattern is that people in the early years of retirement are going to want to do some major capital expenditures. So quite a lot of people have got plans to go travelling. Some people might want to do home improvements, but yeah, you're right. If you've got all of those hours of leisure, you really don't want to be in the situation where you can't afford to do the things that you want to do.
Roy Thompson: 6:50
No because it will just lead to I guess frustration and almost resentment. So as I say, right at the beginning there, what I find really interesting is, yes getting yourself into a position where you're financially secure is very, very important, but it allows you to make some pretty strong emotional decisions which affect the whole family. So it's a really important subject. So when you're speaking with your clients and talking about budgeting, what do you tend to do? What's the process that you involved yourself with?
Gill Lynes: 7:22
So I like to ask people what they're spending now. So if somebody's coming up to retirement now, to get them to think about what their expenses are at the moment, so whilst they're still working, whilst they're still earning and presumably accumulating savings towards giving up work and towards retiring. Then to think about what expenses are going to continue. So some people make the assumption, as you say, that their expenses will be very much less. But unless you're a commuter, then you're still going to have the bills to pay. You're still gonna have a car to run. You are still going to want to do the weekly shopping, to go on holiday and so on and so forth. So the assumption that your expenses are going to be less is probably not correct. So I find it's useful to get people to complete a budget planner. To have a really good look at what their expenditure is and actually what they're spending money on and then have a discussion from there really.
Roy Thompson: 8:27
The budget planner always interests me so when I get it out and start thinking about it with a client there's a definite roll of the eyes. And I think it's just the word budgeting is quite negative. It's got a connotation that you haven't got enough money and perhaps remind you of when you were a student, all of which is pretty dull. But yeah, as I say, I think it's a really important thing, to do to just to get a simple budget planner and write down costs,
Gill Lynes: 8:59
Do you find that clients vary because I find that sometimes you produce the budget planner and people are very resistant to filling it in and would just give you a ballpark figure of what they think their expenditure is. And then you get the other extreme to someone who will produce a really, really detailed spreadsheet which they run themselves, which has everything down to haircuts and getting the chimney swept once a year.
Roy Thompson: 9:28
That's exactly it and the reality in my mind is usually somewhere in between. Because, of course, when you start talking about your budget and start thinking about what's gonna happen moving forward, you're never going to live your life according to a spreadsheet so it's always going to vary slightly. So in my mind, it has to be conceptually correct i.e. it needs to be in the right sort of ballpark. I would probably suggest that most people look back over 3 to 6 months bank statements, what did they spend? What they spend money on and start working out a budget from there. And I think if you start to go into too much granular detail, you'll get sort of paralysis and never get the job completed.
Gill Lynes: 10:06
And I would agree with you and that's sometimes where you get clients, perhaps a couple, you tend to find that there's a spender and a saver in a relationship, seems to be typical. And from then, you might sort of open the discussion as to what you're going to do in retirement, and sometimes you get couples with very, very different ideas of what they'll be doing.
Roy Thompson: 10:32
I think that's a really important thing, because that definitely does happen. But actually sitting down and having a talk about those differences when you're perhaps 5, 10 years away from retirement is important in itself. So it's not just considering the costs, it's considering the acts that go behind the cost. Because if one of you wants to be whizzing around the world in Winnebago and the other one was reading a book on the couch, actually, we better have those conversations now so we can start to think about how we're going to manage as a couple I guess.
Gill Lynes: 11:03
Yeah, and I think people don't do that and people don't visualise what retirement will actually be like for them. And I think that's the problem. I think people need to try and think and plan for retirements, not only from a budgetary point of view, but from a health point of view and from a social point of view as well.
Roy Thompson: 11:24
I strongly agree with that. I'm really interested in this subject, and I think that thinking about the notion of retirement, people should be thinking about the notion of the time that they have. I know you and me have spoken before and you've said about possibly doing a degree, and it's that sort of thing that becomes really important because you're suddenly going to have quite a bit of spare time. You're going to have, in that spare time, you have to think about what you do to fill it and also what you need to do or want to do to give yourself a sense of purpose. Of course, those things are really important, but they might have a cost attached to them. So if you were going to do a university degree, okay, it might be that the costs are covered in some way. But if it's something that you wanted to do privately, it might be that you something you need to fund. So it's an important thing to add in into your budget plan, I guess.
Gill Lynes: 12:17
Yeah, that's right. And I think you need to manage your expectations as well, which is where we come back to the budget planner. If once you've completed the exercise and you think, Gosh, things are a bit tight, then you, hopefully, you've got time to plan to rectify that. If it was my ambition, to go on three or four cruises per year, I might be looking, in fact, I would be looking at my own retirement planning, thinking this is really not sufficient and asking you for a wage rise.
Roy Thompson: 12:49
I'd just be telling you to work longer. Gill. I think that's right and again back to the budget planner and what I find, I guess common mistakes or things that people do is they will start to look at it and they will start to use phraseology along the lines of: Well, this is what could get by on which I think is an interesting concept. So they might be used to living on £2000 a month and they say so I could get by on £1500 and really coming back to that notion of retirement being maybe 25, 30, 35 years, and longer for younger generations. Do you really want to just get by for that period of time, I think it's unlikely.
Gill Lynes: 13:30
Absolutely not, no. And you and you tend to find as well, so, if your budget really was that tight, you'd have to accept the reality that you be likely to go back to work in some form.
Roy Thompson: 13:43
Yeah, and I think you know the notion of working one or two or three days or something of that nature is now quite popular. You know, as people, as I say it gives them that sense of purpose I guess as well, which is a really interesting thing. There was another podcast I was reading about at the weekend, which was a Peter Crouch podcast. So a footballing reference. But he was talking about in the podcast, he was talking about how difficult it is for a retired footballer and I can imagine so because, of course, they're very young when they retire from football. They've been on a big stage and they're moving into a more normal world. And actually he was saying, you know, loss of purpose, a sense of being, those sort of things were a real challenge and he was saying he's quite lucky because obviously he's got a lot of work in the entertainment sector. But lots of other people, in football he was saying, haven't, and I was really struck because actually, that's the same for everyone. That's not just footballer, that's anyone who retires, you know, they move from perhaps having quite a senior position, a sense of responsibility and they move to, if that happened suddenly, they can move to a scenario where all of a sudden they lose quite a bit of their social network and sense of being so yeah, absolutely. Planning for some of these things, I think is really important. And then understanding what that would cost does help you again coming back to that budget planner.
Gill Lynes: 15:11
Absolutely. And by doing that, you can remove a lot of the stress and a lot of the worry and the concern. If you're thinking to yourself. We've both had clients who have said that they want to retire and they're worried that they can't afford to retire and then when we've looked at the figures, we've such them well, actually you can and this is how much income you'd be expecting and is that acceptable. I normally have when I have that kind of conversation, people sort of are very relieved, and are like oh that's great and then they normally say But I'm not going to do it yet. I'm going to keep working and I'm going to keep saving. But the fact that they've got, they know that they've got that base level of income, that they can look to cover essential seems to be really comforting and so they find a really worthwhile exercise.
Roy Thompson: 16:03
Yeah, I think that's right. And I think it probably depends a little bit on your age if you start to try and do a budget for retirement when you're, well I'm 43, so if I tried to do one now it's only ever going to be broadly correct at best. And actually, if I started to say, Well, I think I've got enough money, that's quite a brave call because I've got an exceedingly long period of time, fingers crossed, until I'm no longer here. Of course, if you get to sort 60, 65 you're much closer to the point where you're going, you're going to retire, and you'll have a much stronger idea about whether the outgoings you've listed on your budget are actually correct. But I think it's another point, completing a budget for retirement isn't just a one time only deal. It's something to look at on a regular basis, as your thoughts and feelings towards the world change. And of course, as legislation changes as I mentioned right at the beginning. Actually, you know, social care and how that will affect people moving forward is likely to be quite a big political hot potato for the next few years. And what you may well find is that actually, more and more costs come down to the consumer, whether we like that or not.
Gill Lynes: 17:16
Yeah, I think we're already seeing that. And I think it's a very difficult one because, you know, I have a lot of clients who will go into care later in life and that hasn't been planned for and that is a huge strain on the resources and the whole family is affected by that. But I think you know there are things that we can do and there is planning that can be done just to make sure that finances are structured in the right way, to minimise the impact of that but it is a huge issue.
Roy Thompson: 17:52
Absolutely so Gill, I guess in talking about this, what we're saying is budgeting. I think whilst a negative connotation has a positive slant when we start to think of it in retirement. So that's the first thing. If you're absolutely looking at doing this, you should complete a budget planner that looks at your basic costs, so that's your Council Tax, your food bills, your day to day. You should look at what you spend on discretionary spending and ask yourself whether that's going to continue into retirement. You should look at things like house repairs, those sorts of things. So the odd one-off costs you should budget for as well.
Gill Lynes: 18:39
Yeah you might have debt or a mortgage, interest-only mortgage. We frequently see people saying well they need to repay that, so that's another thing that we come across quite regularly.
Roy Thompson: 18:51
I agree or should seek a way of making sure that you've got that funding security as you move into retirement. What you should then do in terms of the discretionary costs is you should start to think about the things you might want to do in retirement. Gill, I referenced your notion of you doing a university degree, I could tell you some of the things I'd quite like to do, but some of them are a bit embarrassing and not for public consumption. But so definitely start to think about the things you might want to do. Whether you want to help your kids, your grandkids, those sorts of things, they should all be factored into your budget. You should make a stab of putting this down on paper and you should look at doing this on a regular basis, at least annually and you can start once you've got that budget, you can start to see whether your savings are on track. What we haven't done today is we haven't spoken about how much savings you need, to perhaps cover the budget that you've got and that's very much a different subject in my mind about the sorts of things you can do and the returns you can expect when you get to retirement. So limiting it just to the budget side of things today. But that's been, I know your experiences are similar to mine. But that's been really useful today, Gill, and appreciate you taking the time.
Roy Thompson: 20:15
So before we finish off. What I want to do is just to ask you three key questions or three questions that I'm going to ask all my guests. So, first and foremost, what's the one bit of advice you would give to someone at the pub?
Gill Lynes: 20:30
At the pub? Don't eat the peanuts,
Roy Thompson: 20:37
Don't eat the peanuts! What's your favourite day of the week? I think you look like a Sunday woman.
Gill Lynes: 0:00
No, I don't like Sundays.
Roy Thompson: 20:55
Is that the thought of coming back to work on a Monday?
Gill Lynes: 20:56
No, it used to be the whole getting the kids ready for school kind of thing. No, I like a Saturday morning
Roy Thompson: 20:59
Saturday morning, a cup of coffee, read the paper, feet up. That sounds good to me Gill.
Roy Thompson: 21:07
Then the last one, linked to retirement, I guess. and old age, which is a bit glum. What's your funeral song?
Gill Lynes: 0:00
Oh, Everybody Hurts.
Roy Thompson: 21:14
Ah REM! There's gonna be a few tears flowing when that plays eventually. So thanks very much, Gill and thank you for listening.
Roy Thompson: 21:28
If you'd like to use our budget planner, please feel free to visit www.carpenterbox.com/RetirementGym where we posted our budget planner. If you're interested in this Podcast series, then the next podcast will be with Ian Macara, of Bennett Griffin, he is a solicitor based in Worthing. And he'll be talking about some of the legal implications around issues that can come up in later life. Until then, thanks for much.