Fisher Investments UK Retirement Budgeting Tips


How Much Money Can You Spend in Retirement? What lifestyle would you like your savings and investments to fund during your golden years? In the opinion of Fisher Investments UK, the answers to these questions are essential in determining how to finance retirement with long-term investments (in whole or in part). We believe there are two main ways to estimate planned spending, and both can influence how you finance your retirement. This can help you develop a financial plan based on your unique circumstances and needs, in our opinion.

First, we think it’s a good idea to start estimating your planned spending. Keep track of your current expenses and think about how they might differ in retirement. Separate them into non-discretionary living expenses (things you need to spend on) and discretionary expenses (things you can live without). The former can include housing and health care costs and other financial obligations, including debt repayments, taxes, and insurance. The latter is more optional, eg travel and entertainment. These are expenses that you could narrow down if necessary. By recording everything you can think of, from planned daily expenses to less frequent or even just potential expenses, you can get a rough idea of ​​what retirement will cost – how much it will take to maintain a certain quality of life.

Next, we think it’s wise to consider how your spending might change, if at all. For example, will you be moving when you retire? Is the cost of living in the new area likely to be higher or lower? Also consider any expenses you might reduce or even forgo in retirement, including travel expenses, work clothes, or child / senior care which may no longer apply. If not, what could increase? Is there a hobby you’ve always wanted to do, or do you plan to travel or dine out more? Don’t forget about health care. The older you get, the more likely medical expenses are to increase, in our experience. Your family history in this regard can provide a rough guide on what to plan for.

Once you’ve figured out what you’re going to spend, we also think it’s important to factor in inflation – that is, the general rise in prices across the economy. In addition to the historical inflation rate and the trend for your country, we think it’s useful to look at price increases in expense categories relevant to your personal situation. For example, between 2001 and 2020, euro area prices for hospital services increased by 64.6%, well above 35.1% at large.[i] (The Harmonized Consumer Price Index, or HICP, is a broad measure of the prices of goods and services.) It was even more dramatic in the UK: prices for hospital services rose 161.0% vs. 46.0% over the same period.[ii] We believe these types of trends are worth keeping in mind for investors approaching or already in retirement. While your projections don’t have to be exact, tracking your personal inflation rate over time can help reduce the chances of surprises when your cost of living increases later in life. Factoring in inflation can also help create a cushion in your retirement plan.

Having established what is coming out of your wallet, what do you have inside? This equates to your expected non-investment income in retirement plus any cash flow your portfolio can generate. Non-investment income may include public and private pension plans to which you are entitled, residual business income, and income earned by a family member or yourself (for example, from part-time work taken retired). We believe that comparing this with your likely spending can give you a clearer picture of what your investments need to accomplish and what type of portfolio withdrawal rate is viable in your situation.

This review can help you set the upper limit for your spending over a period of time under different circumstances and conditions. In our opinion, it basically depends on your time horizon – the period for which you (and your loved ones) need your investments – which we believe generally depends on your health, your life expectancy, and any inheritance you have. would like to leave. From there, we believe it pays to take into account various asset return projections – using history as a guide to setting realistic assumptions – and your level of comfort with market risks. This exercise can help you form reasonable expectations about what your retirement portfolio can – and cannot – deliver. If the budget you selected in the first half of this exercise results in large withdrawals from your investments that could drain your accounts when you still need them, you might find a useful signal to change your plans, perhaps by saving and investing more before you retire or reducing your planned spending. In the view of Fisher Investments UK, it is also useful to keep in mind the distinction between non-discretionary and discretionary spending. In adverse market conditions, reducing discretionary spending can help. Hope you never need to do this. But it is possible.

In our view, exploring the interplay between probable expenses and cash flow creates a useful foundation for financial planning. At the start of the retirement planning process, you can use your estimated personal spending rate to support your savings and investment goals to fund desired withdrawals. This can tell you how much you need to save and your asset allocation — the combination of stocks, fixed interest, cash, and other securities in your portfolio. Establishing a long-term financial goal over your working years can help you plan while considering potential adjustments along the way. As you near or near retirement, you can use your nest egg and potential withdrawal rates to help guide your spending decisions. Everything doesn’t go as planned, but we believe that setting some basic expectations can help you better prepare if things don’t go quite the way you originally planned.

In our view, budgeting for retirement is not set in stone. We believe this should be an ongoing process, periodically reviewed and updated as circumstances change.

Interested in planning your retirement? Get our current information, starting with The definitive guide to retirement income.

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Fisher Investments Europe Limited, operating as Fisher Investments UK, is authorized and regulated by the Financial Conduct Authority of the United Kingdom (FCA number 191609) and is registered in England (company number 3850593). Fisher Investments Europe Limited is headquartered at: Level 18, One Canada Square, Canary Wharf, London, E14 5AX, United Kingdom.

Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, operating as Fisher Investments, which is established in the United States and regulated by the United States Securities and Exchange Commission. . Investing in the financial markets involves a risk of loss and there is no guarantee that all or part of the invested capital will be returned. Past performance does not guarantee or reliably indicate future performance. The value of investments and the income from them fluctuate with global financial markets and international exchange rates.

[i] Source: FactSet, as of 09/14/2021. Euro area HICP (hospital services HICP and euro area HICP), all items, percentage change, 2001-2020.

[ii] Same. UK HICP (hospital services and UK HICP), all items, percent change, 2001-2020.


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