Bob and Alice Can-We-Spend-It had been retired for a couple of years. They had always dreamed of retirement: the things they’d do together and the places they would see. The trouble was, they were worried about spending too much, too early, and not having enough for the future. Bob and Alice enjoyed retirement, but when it came to the ‘big ticket’ items such as having that extra holiday in the sun (remember those days?), staying in a better hotel, or taking the family away on holiday, they somehow held back.

Although deep down they knew that they were financially comfortable, they had this nagging doubt about running out of money later in life.

Like many people, they had scrimped and saved to give themselves a comfortable retirement. They owned their own home, had an investment property worth £300,000 and pensions/investments/savings of £450,000. All in all, a tidy sum. But, still, Bob and Alice were concerned they didn’t have enough.

Sitting down with a real financial planner, they were able to establish how much the life of their dreams would actually cost. Then, using powerful financial planning software, they were able to identify how much capital they needed. It turns out that it is a lot less than they thought. In fact, based on prudent and realistic assumptions and allowing for inflation and the potential cost of future nursing care, Bob and Alice were never going to run out of money.

Agreeing prudent and realistic assumptions is one of the key issues in painting a picture of Bob and Alice’s financial future. Not every item of income or expenditure will, for example, increase in line with inflation – indeed, which measure of inflation is most appropriate to someone in retirement? Further aspects to consider include the number of years Bob and

Alice anticipate being active; at a certain point, older age will arrive, and many items of discretionary expenditure are likely to reduce. Something also key is establishing the rate of return that is needed for their investments to be able to meet the level of expenditure. It is necessary to identify the level of risk that Bob and Alice would be comfortable with. Then, it is important to develop an investment strategy that can deliver the required returns.

They meet annually with their financial planner to make sure everything stays on track. Part of the need for a regular annual review is to make sure that they can stick to their plan.

As the current pandemic serves to remind us, future events can often be unpredictable and Bob and Alice might be blown off course. Minor amendments to bring them back on track should help to smooth their journey.

Already, they have a big trip organised for the whole family.

May 2021