There’s a phrase in financial planning which very simply sums up the amount of money you think you’ll need for your retirement – it’s called ‘what’s your number?’.

This is the figure that people have established based on a wide range of factors unique to them. One thing I’ve found over the years is that everyone’s number is different, depending on what an individual currently has and what their plans for retirement are.

In simple terms, the number is the overall amount of money that you need to ensure you don’t have to worry about the future or work again. It’s an amount of capital that can be drawn down on that will provide for your needs in later life.

Everybody will be different – we all have a different lifestyle. We could all choose to live simply if we wanted to but most of us would like a certain lifestyle and the more lifestyle you want the more costs go with it, whether that be drinking finer wine, driving nice cars or holidaying twice a year.

Lifestyle Choice

You don’t have to do these things but you may choose to do them so it’s a lifestyle choice and consequently the amount of money you need in retirement is a lifestyle choice as well.

Most people when they get to retirement don’t want less than they currently have. In fact, they often want more because they’ve got more time on their hands. So, establishing ‘what’s your number’ is one of the most important things in retirement financial planning.

If you’re very spreadsheet literate you could probably put something together yourself that will project forward your current investments and assess how much of your income you can set aside for the future based on what you’re likely to need.

But a lot of the issues you’ll face are emotional ones. They’re not so much the hard, practical facts but questions such as ‘what can we do for the kids?’ and ‘what can we give back?’, either to the family or to society as a whole.

There’s a cost to all of these things – whether it be time or money – and it’s really just a case of an individual understanding what it is they really want to get out of life while they’re working and also afterwards.

Once a financial planner has established this they can work out what a client’s number is and what they need to have – how big their hill of beans needs to be.

Cornerstone

This is where financial forecasting comes in and this is the cornerstone of most financial planners’ heart.

Forecasting paints a vivid picture of an individual’s financial circumstances, both now and into the future and it shows us in detail just what the client wants to get out of the process.

It also allows various situations to be modelled to demonstrate how a client’s final pot may be affected by changes in circumstances.

It will show whether they’re dream is attainable, because sometimes it’s not and you have to be realistic about these things. But, if it’s not, by making some smart decisions now you can move some way towards it, something you won’t be able to do if you are unaware of any shortfall until it’s too late.

Working out what you can do now can give you a more certain future free from any unwelcome financial surprises which could impact on the standard of living you aspire to.

Remember, the value of your investments can go down as well as up. Past performance is not a reliable indicator of future outcomes.

For a free consultation about your financial needs call 0118 974 0159 or email andy@faronpartnership.co.uk.