Financial planning experts have urged advisers to stay up to date with how they model income in retirement as life expectancy, health and working patterns continue to shift among the older population.
In the first of our new series with Vitality as part of our Value Exchange project, we gathered specialists in cashflow planning, behavioural economics and financial education to discuss how advisers can meet the challenges of clients banks that are living healthier, and living healthier for longer.
Founder of the Timeline app Abraham Okusanya emphasised the importance of using versatile cashflow modelling tools to ensure income is mapped in a sustainable way.
He said: “The traditional way of think about modelling income in retirement needs to change. By that I mean the traditional cashflow projection where we assume static return and inflation and life expectancy and we draw a straight-line projection based on that – that’s got to change because the reality is that the environment that we are working in right now post pension freedoms where the traditional safeguards put there by the government are out the window.
“Its never been more important for advisers to use a different model when we think about sustainability of income in retirement.”
Aspect8 IFA Claire Walsh said that while some clients will refuse to believe how long they will live, spending in early retirement before health problems can hit is often sound planning.
She said: “Most people start from a point of denial. They say they are never going to live beyond 80. I always plan to 100. Better to be safe than sorry.
“I’m one of the more optimistic planners. I try and encourage people to use their money a little bit more and to think about what they want to do in early retirement. No-one wants to run out of money and be impoverished and old but most of the people we are working with we are encouraging them to spend their money and enjoy their early retirement and often the fall back is I will cash in my property.”
Vitality distribution director Justin Garbutt noted that shifts in employment mean that retirement is a continuing event as opposed to onne moment.
He said: “For us it’s about how you plan for an outcomes based solution. How do you give people the peace of mind no matter how long they live for they are going to be taken care of?
“When you are designing a cashflow product, it’s very much around understanding that people are not going to retire in a linear way…you are going to go into other professions, part time work, consultancy. Designing a product that allows for that environment where it’s a lot more flexible can dip in and out of work and create an environment where they look after their health they are actually creating a bigger pension pot going forward.”
Personal finance author and speaker Jason Butler added: “We all underestimate the likelihood of us living a long life. We underestimate the cost of living too long in the sense of health and situation…What we have to do is help people understand that they don’t have to have all pain now to plan for this time when they are going to fall apart, retreating from society and infirm. But equally if they only live for today and don’t plan for the long term it’s going to be a very difficult lifestyle for them.”
The Value Exchange will bring together exclusive thought leadership and insights on how health and lifestyle trends are impacting financial planning. Click through to view more.