We talk a lot about how much is enough? It is a fundamental plank of Financial Planning.
Have I got enough to retire? How long will my money last? Is it enough to last for the rest of my life?
I sat last week with a client who has been looking at these questions and trying to work out what retired life will look like in a few years time.
I particularly liked the way that he was segmenting his wealth into various ‘pots’.
Income for him and his wife will come from a combination of private pension provision, state pension benefits and even possibly the continuation of earnings on a part time or reduced involvement in his business basis.
They have purchased a property in a lovely location which is in the process of being renovated, paid off outstanding loans and effectively downsized at the same time to release funds for what I thought were some super reasons.
Pot one is to help their two sons with deposits for property purchase in the future.
Of course more and more people are having to help the next generation do things like this but it is lovely to be able to earmark monies for this purpose.
Pot two is designed to be spent over the next 20 years (now that is forward planning) on annual holidays etc.
This is clever in my view because they have worked out that the income that they are able to get from their pensions will pay for their living costs but not enough for the kind of holidays and experiences they want to continue enjoying.
Whilst some people are concerned not to spend capital this couple understands that they can use the money to do the things they want to do.
Pot three is an emergency fund for those things that might go wrong in the future or for capital asset replacement spending.
Our job now is to validate their figures.
Will they have enough income and capital to achieve all their goals? Are their goals realistic and achievable?
This is what Financial Planning is all about.
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