Why it is vital to fully understand your finances
It is vitally important that anyone preparing for retirement, in whatever format that may take, knows where they are now in terms of their finances, and where they are likely to be heading in the future.
This sort of assessment is not a case of plucking random figures out of thin air; clients need to be fully aware of the state of their finances so they can plan, prepare and evaluate. The role of an IFA is to work with clients to find out exactly what their lifestyle costs are now, how that impacts the amount they can save, and what they must do in order to be assured that they can live their ideal retirement.
There are so many financially-intensive aspects to consider when preparing for retirement; bucket list items, holidays, unpaid debts, university fees for children, inheritance, care home fees, to name but a few. There are so many factors to consider, and without careful and measured planning it can be very easy to set aside less money than will be required.
IFAs use prudent assumptions and work closely with clients to ensure all parties know how much money must be saved to get to where the client wants to be, and, more importantly, to ensure they can maintain their desired lifestyle in years to come.
This then makes it easier for them to make important decisions regarding their finances; should they sell their business, for example? Do they need to set aside more money each month? What they receive in terms of state pension shouldn’t make much of a difference to these calculations.
In my experience, most people don’t save enough purely because they have no idea how much they should be putting aside. Put simply, they are not fully aware of the real cost of their future, and that lack of knowledge could potentially be financially damaging once employment has ended.