The Pensions Policy Institute (PPI) has recently published the second of its ‘Supporting Later Life’ reports.
Anyone involved with later life advice or guidance should take time to read it. There is something for everyone that should help their understanding of later life issues and develop their business.
Generally, people look at retirement as a one-off event. I do not. Life does not freeze just because you have stopped working or reached a specified age. This ignores how the individual, or more importantly, their household transition from work into retirement.
Then other financial events will occur. For example, receipt of a windfall, (an inheritance or a lottery win), a divorce or major illness, that will require a rethink of the financial plan that is in place. These events cannot be predicted, for every individual they will occur at different ages, if they occur at all.
So, we generalise. I take the view that activity dictates spending. Highly-active newly-retired individuals will spend more than sedentary people who will spend much less. Those who have to pay for their care will experience increased spending.
This gives three broad periods of retirement: active, sedentary and in receipt of care. The problem is that we are all different, some will experience a long active period of retirement, others a short period. The same applies to each of the three stages.
I am aware of people who seem to enter the sedentary stage very quickly after stopping work. This confirms not all will experience all three periods. As spending dictates income needs, the costliest retirement will be one that has a long active period followed almost immediately by a long period of care needs.
This illustrates why, throughout retirement, conversations should take place about what stage the individual is at with their retirement and what their future could look like. This goes beyond just looking at investment performance.
The PPI report also segments retirement into three periods, but they look at dependency for their categorisation. They define the categories as Independent, Decline, and Dependent.
Independent is where people have minimal physical limitations and general good health. People in the decline stage have one mild physical limitation and are more likely to be experiencing declines in mental health. Those in the dependent stage have one or more severe physical limitation. This does not mean they have to move to a care facility, but they will need substantial support to live independently.
Whie not looking at the spending needs in each phase of retirement the PPI report provides another layer of understanding your client. What it does do however is examine the changes in wealth as a typical individual in each of the quintiles moves through their various later life stages.
The report includes housing in the wealth of individuals and looks at the complexity of decisions individuals need to take, not only when they retire but as their household situation changes throughout their retirement.
If you are involved in the later life advice/guidance market how do you take your clients through their later life stages? How do you prepare them for the next stage and help them change their financial plans and goals? There is no correct answer, only answers that can be improved upon.
When saving for retirement there can be headwinds that will blow you off course. But it is often possible to change the objective, e.g. target retirement date, or the quality of lifestyle being aimed for. Once in retirement many things become beyond the control of the individual and changes can occur quite rapidly.
Every client is a unique case. This makes it difficult to build model approaches. What we need to do is learn, continually add to our learning, and share experiences. The PPI report offers all a chance to add to our knowledge, and to the value of the advice we give.