There are only two types of people, those who outlive their money and those who don't. Everyone wants to be in the latter group, but as you approach retirement it may be too late to do much about this.
Once you stop earning an income you move into the spending stage of your life (retirement). In order to outlive your money you have various financial levers you can pull to get the odds on your side, but remember we're Financial Advisers and not Magicians!
The ideal time to create a retirement investment pot that will provide a retirement income you can't outlive is during the savings stage (whilst you're earning an income) of life. This stage is also known as the "wealth window", the period of life during which you can convert your human capital (income) into invested capital.
As you progress through life (and life is short, see the article Your Life In Weeks) this "wealth window" is constantly getting shorter and shorter, one paycheck and one month at a time. Your ability to regularly put away money for the benefit of your future self is the driving force of an independent retirement.
One habit that all successful investors share is that of automating their monthly savings (ideally increasing the monthly amount by 10%+ at least annually). Think of this as your most important monthly expense, only you're paying in advance for a meaningful retirement. How much time is remaining in your wealth window? Savvy investors know this number to the month, if you're 10 years away from retirement you have 120 months left in your wealth window, if you're 14 years away you have 168 months to go.
How well are you converting your human capital into investment capital? The wisest investors know the % of their net income that they're putting away for the future. Helping you to make the most out of your wealth window is one of the reasons we do what we do.
Appreciating that investing today is the spending of your future self, the person you'll become. As always balancing the enjoying 'now' but planning for 'then'.
The real enemy
The number one enemy of the long-term investor is the financial dragon called inflation (the silent but steady increase of prices over time).
Over the last 30 years (about the length of an average two-person retirement), inflation in the UK has resulted in an item costing £1 in 1990 now costing £1.89 in 2020. Your purchasing power has almost halved!
But £1 invested in the UK share market is worth £3.55 today, and that's ignoring 30 years of dividends! And this during a three-decade period that included the dot-com bubble, the great financial crisis, and the Covid-19 pandemic.
And what did you have to do to earn this? Two (behavioural) things:
1. Invest and stare out of the window (much harder than it sounds, as we've seen recently).
2. Be willing to see your investment value decrease by about -15% on average every year without being panicked into selling. Think of the yearly declines as hurricanes, unpleasant but they pass.
Guiding you through these periods of volatility is why we exist.
Here to help
If you are looking to build or update your own financial plan we would be delighted to help. We can build a plan that will consider your long-term financial goals so that they always reflect what you want to achieve and the things you care about.
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