Looking back to look forward

"I’ve looked back at the major events that had an impact on my finances over the past 30 years to see if they provide any clues as to how my spending will change over the next 30."

The first question you might ask is why would I do this? Well I’m 65 and, if I assume that I have 30 years to live, perhaps looking back will help me understand my future spending needs. Perhaps.

Since the beginning of 1988, I have experienced the unexpected death of my father, many years as a single parent, the uncertainties of mergers and being in the wrong location for any career prospects, redundancy, becoming a ‘pensioner’ at the age of 52, moving to a new part of the country and starting a new life with a new family, beginning new careers, major heart surgery, then stopping work and deciding to take on a portfolio career. A rather varied 30 years by anyone’s standards.

So, what was the last 30 years like for you? I suspect some of you may have a much longer list of events than me. However, what this exercise shows is that many of the events which affected me personally and financially occurred with no warning. Others, particularly those involving relationships, would have had a lead-in time to enable some planning; others were a reaction to my circumstances at the time.

Looking forward then, what does that sort of review inform me about my future? What spending should I plan for? Firstly, let’s fill in some other important information. My wife enjoys her work - she works with many younger people and that keeps her young. I also have a personal project I want to bring to fruition. At the moment my regular pensions are more than enough to meet my outgoings, and we do not have to call upon our other investments and pensions.

I cannot see myself retiring in the true sense of the word until I am beyond age 70. I am enjoying what I am doing too much. But have I learned the lessons of the last 30 years? How many of the events that affected my life were predictable and under my control?

My health may rapidly deteriorate and next year I may have to slow down; in which case I may believe I may not survive beyond 80. That does not mean I will not live until I am 100 just that my attitude at that time will have changed. On the other hand in 10 years I could still be looking for new challenges and be convinced that I will live beyond 100 and may even be immortal (!). Still I may not survive beyond 80.

Who amongst my immediate family will need care? My mother is approaching 90, my mother-in-law turned 90 a few months ago. Will I receive inheritances or will that wealth be consumed by the cost of care provision? How much of my time will be consumed by caring for my ageing relatives. Will I or my wife have an extended period in care? More importantly, when will it begin and for how long will it last?

I don’t know of course; which means I can only continue as if everything will continue as is, but be aware of the potential events that may blow me off course.

I consider that I have been lucky. Many events worked to my advantage. Others may say it was my reaction to events that have put me in the position I find myself today. What if things had been different?

Professional retirement advisers know what is going to happen to people on average. A 65-year old has a one in three chance of spending a significant period in care. On average they will die at age 86. They require around 60% of their final earnings as retirement income. In real terms their spending will gradually reduce over their retirement. But, no individual is average.

However, look what happens to the statistics as people age? At age 75 the chances of needing care will have increased; on average these people will die at an older age but they tend to still be the same individual as they were at age 65. In many senses, nothing has changed.

Going back to myself, I am optimistic but realistic. I hope I’ll be active for many years yet, I hope I’ll not need care and I hope I’ll live until I’m 100. That is the path I believe I am on.

Looking back over the past 30 years I know that I will never know what the next day will bring. I therefore need to be realistic in my financial planning and have the flexibility to change course quickly.

It is that element of realism that is the value that a good retirement income planner brings to their clients. So, looking back to look forward can be a worthwhile exercise to introduce your clients to what the future may or may not bring.