So you’re feeling pretty good about yourself. You did well at school; earned your degree; got a job with prospects (nay, a career!). You climbed the greasy corporate pole – or, perhaps less evocatively, you did well at a job you quite enjoyed, and your employer rewarded you with a promotion and a pay rise.
But there’s a reasonable likelihood that you’re going to be poor in your old age.
Here’s why (and what you can do about it)…
But I’ve Got A Pension!
You’ve even thought about your old age. Your mum went on at you to make sure you were investing in a pension and, since your employer provided a scheme, you joined it.
It’s even quite a good scheme – not quite the gold-plated final salary doozer that your older colleagues got – but the employer contributions are good and they’re matching your AVCs (additional voluntary contributions). You’ve steadily paid into it over these past 15 years and, despite you not having really given it much attention, the pot seems to have been growing.
Your annual statements, you know the ones with the forecast pension, do look a bit, er, miserly but, hell, you’ve got time. Your salary is still growing. Forecasts are always inaccurate. It’ll all come good.
And Other Savings
Other savings? Ah yes. To be fair to yourself (and you do like to be fair), you’re a good saver (don’t worry, I believe you). You like nice things (anything with an apple on it, other than a tree) but you don’t waste money on too many fripperies (those sneaky fripperies!).
Almost as soon as you realised the cost of a rented flat, you began saving for your first deposit. And you did it. You bought a nice flat, perhaps with your girlfriend (now wife), and without having to rely on ludicrous income multiples and a 100% mortgage. Digital high five.
Since then, you’ve ‘settled down’ – sold the flat, bought a family home. Your low cost tracker mortgage has allowed you to overpay on the loan repayments, and you now have a nice chunk of equity in the property.
Despite the mortgage overpayments, the comfortable lifestyle, the impact of nappies and all-terrain buggies on your monthly pay packet, you’ve still been able to save regularly. First the emergency fund, then the pot for ‘the future’ (though you haven’t thought in great detail about how much money you will need and what you will you’ll use it for).
The Fear That Lurks Within
Occasionally you wake up sweating at the thought of ever-increasing university fees (you don’t want your children saddled with debt) or that your future self may have to choose between hyper-inflated fuel bills or having food on the table (and you thought you were one of the financially successful ones!).
Generally, though, you’re good at pushing these dark thoughts to the back of your mind. You’re an optimist and (as you just exclaimed) one of the financially successful ones.
[“You” sinks to knees and flings hands skywards, sobbing, “I thought I did everything right!”]
Are You Scared Yet?
Alright, hyperbole aside, the truth is that you have done most things right (no one does everything right – remember those expensive tiles your wife persuaded you to have in the extension…).
Also, I should say that “you” is I (and I is you; we all is together… er… sorry). The story above isn’t quite my own, but there are some similarities.
The fact is that for many ‘financially successful’ people, it is no longer a given that retirement income will be as high (relative to employed income or to the wider cost of living) as it was for our parents generation.
We will have to take responsibility for our income after we retire (and be more involved beforehand). In most industries, employers are only prepared to contribute funds into the pension fund; they want little to do with what pops out the other side. Employees are increasingly (and probably rightly) involved in how those funds are invested over their working life.
Now is not the time to go all political on your ass, but, to me, it seems sensible at least to plan for a situation in which the state pension no longer exists in its current form. At the very least, we can expect payouts to commence at a higher age (80 anyone?).
If you’re relying on the state pension to push yourself over the line from a meagre to a comfortable old age, I’d seriously be thinking about a backup plan.
So What Can You Do About It?
Hopefully you’re realistic enough not to expect a one-shot solution in a blog post (what, you were expecting that? Ah… [whistles] … this is uncomfortable).
There is no single way to ensure that you’ll be financially secure once your ‘traditional’ working life is over (short of winning the lottery, and even then…).
The plan will need to be composed of multiple parts: your pension, your savings, a sideline income (grandadblogger.com?), releasing some of the equity in your house.
But key to at least two of those items (the pension and the savings) will be to make your wealth work as hard as possible for you during your working lifetime – the ‘building phase’ if you will (er, will you?).
Magical Mr Investicles
Here’s where the Investicles blog comes in.
Hopefully you’ll join me as we work together to grow our stashes (our pot, our capital, whatever): slowly and steadily, using our intelligence, our courage and our patience.
You never know, perhaps you’ll be able to afford to send your kids to university and pay your retirement gas bill.
Happy days indeed.