Do you really need to work longer?

Do you really need to work longer?

Slaving over a hot computer, putting in extra hours over the weekend… many pre-retirees are driven by a fear of the future. What if I don’t have enough money saved? What if I outlive my investments? Maybe I’ll just tap away for another two years to ensure my family are secure.

We live in a culture that warns of dire consequences if you don’t have a certain amount in the bank by a certain age. Mostly, this is cookie-cutter, Google-search-engine-clickbait stuff – everyone has a different picture of what retirement is going to look like. However, there is no denying the trend of more people working longer.

In November 2021, a survey by Fidelity Investments found that a growing number of pre-retirees were planning to delay their retirement past age 65. Fewer than 38% of respondents said they were planning to retire by age 65. This finding indicates a 6% decrease, compared to about 42% who said the same in 2020.


Why are people working longer?

The reasons tapped into common fears. Just over half said they were concerned with the cost of living or that they won’t have enough money saved to retire. Additionally, 62% said they believe they’ll have to continue working to some degree to continue to enjoy the lifestyle to which they have become accustomed. Another 21% of people said they didn’t think they’d need to work but would like the additional security that comes from employment income.

What if these perceptions were skewed? What if people think they have to work longer than they need to? Inflation, interest rates, longevity risks and the age-related support costs that go along with it… they all fuel these worries. But for pre-retirees who have worked hard and saved well, what if there were strategies a good Certified Financial Planner (CFP professional) could walk you through that would mean you don’t have to answer those work emails for an extra two or three years?

As explained in our previous blog, “Why Financial Planning Has A Reputation Problem”, financial advice should be less about the potential return on investments and more about the potential return on life. What greater return can there be than extra years of fulfilling retirement. It’s entirely possible that the number you think you need to hit to retire might not be as high as you imagine.

Rather than helping you put a few more thousands in the bank for you to enjoy when you reach the ripe old age of 107, a CFP professional can strategically help you retire on your terms. Of course, “Johnny Big Bucks” who likes three golf holidays, a family cruise, and tickets to centre court for the whole two weeks of Wimbledon every year will need more in the bank than someone who simply seeks a sunny annual vacation and the ability to help their children navigate life’s challenges.


How it works … in real life

This sentiment is echoed in real life testimonials. A good planner can change lives, not by adding an extra couple of basis points to their return statement but by giving clients the keys to enhance their lives. This includes giving people the peace of mind to retire or at least to approach this stage of life with options and confidence. By working out someone’s “maximum sustainable budget”, the amount that a person or couple could spend without running out of investments by age 90 (at which time it might be reasonable to borrow against or sell a principal residence), we are able to provide our clients with clarity.

Take Juan (his name has been changed to protect client anonymity), a single, 54-year-old executive whose employer moved him to a new position at the beginning of the pandemic. Deeply unhappy with this, and with no one to lean on financially if he wanted to make a career move or retire early, he was unsettled by what the future might hold, given how accustomed he is to his high salary and the lifestyle it affords him.

By building a financial model based on his current asset level and conservative, impartial rates of return, we discovered he is already spending very near to his “maximum sustainable budget”. However, the power of advice meant that with modest modifications to his investment portfolio, he could save approximately $400,000 in taxes over the course of his lifetime. The result: Juan feels a whole lot better knowing he doesn’t have to suffer through his current position if he doesn’t want to. His future is in his hands, not his employers, which is a powerful feeling.

For Kim (again, name changed to protect client anonymity), she was worried about overspending in retirement and eating into her daughters’ inheritance. Having retired at 55 with a substantial pension, her husband was diagnosed with ALS, and she spent the next three years as a full-time caregiver. Her husband passed away in 2021 and Kim is only now just starting to enjoy her retirement, planning travel with new friends made in her grief support groups. However, her daughters are both working, starting families, and generally struggling financially.

Again, the power of advice flexed its muscles. We asked Kim if she would consider smaller, regular distributions to her daughters instead of preserving a substantial estate since this would save her a substantial amount of tax.  Money that is invested and then reinvested and not spent creates large, unrealized tax consequences, whereas spending or sharing money while she is alive not only allows someone like Kim to see how her legacy is helping her daughters, but it also ensures that the portfolio doesn’t grow without a purpose and create unruly future tax consequences.

If Kim were to gift the funds to her daughters today, it might infringe on her ability to enjoy the extra travel that she wanted.  But by testing Kim’s maximum sustainable budget, it revealed she was able to spend – or share – approximately $27,000 more than she is currently spending each year, on an inflation-adjusted basis. For example, one year she could take a trip with her new friends costing $12,000 and distribute $7,500 to each of her daughters.  Another year, she could take a smaller trip and distribute more to them or do the opposite. Importantly, she doesn’t need to commit to anything today and the maximum sustainable budget can be monitored and adjusted accordingly.

These scenarios show how strategic financial planning, with the help of a professional, can make your money work more efficiently, freeing up capital to attain your retirement dreams, untethered by fears you haven’t reached that mythical final savings number.

This shatters the myth that financial planning is simply about maximising balance sheets. In our view, planning is more about maximising lives whether that’s more travel, ensuring less tax burden on your kids’ inheritance or, critically, giving you peace of mind about the future. You deserve to embrace and enjoy the full potential that your hard-earned retirement can offer.

ETF Capital Management

At ETF Capital Management, our mission is to enhance your peace of mind by reducing investment volatility, to help you stay the course in order to achieve your personal long-term return targets. Our vision is to help you achieve the highest possible standard of living, enabling you to realize your best and most fulfilled life.

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