At some point the day will come when you either don’t have the motivation or energy to continue working and you will decide it is either time to stop entirely or at least reduce the hours you do work.
The problem you may find is that your treasure chest isn’t full enough to support you without your regular income.
Here are 10 reasons why you risk falling into this trap:
- You will start planning for your retirement too late so you will not contribute enough to your pension fund.
- You have not considered building up an ISA fund and other investment portfolios to support your retirement income.
- You are substituting long term financial planning for short term expenditures.
- Your investment strategy is wrong. You will either take insufficient investment risk when you can afford to do so or too much nearer retirement when you won’t have time to recoup losses that may occur.
- You view your business as your pension and don’t see the risk inherent in this strategy.
- You are relying on an inheritance that will never materialise because you have not appreciated the cost of care fees for your parents in their old age.
- You have not considered the effect of inflation on retirement income so your pension fund will not be big enough to last the thirty plus years you are likely to live for after retirement.
- You will not review your investments regularly enough so your capital will languish in inappropriate funds that will not provide a big enough pot in retirement.
- You will rely on higher disposable income later in your working life to boost your retirement fund but legislation will change (again) making pension planning more restrictive.
- You will live longer than you anticipate so will outlast your money.
and one bonus reason:
11. You thought you could time the markets only to find you avoided the stock market crash too late and missed the subsequent rally because the good news you were waiting for never came.
Taking the following steps can give you the best chance of stopping work when you wish with the income you need.
- Start NOW.
- Take time to think when you wish to stop and what income you will need to live the lifestyle you wish.
- Save first then spend so that you can designate as much capital as possible to your retirement planning. Smaller, regular investments made sooner have a much greater effect that larger ones later.
- Don’t rely on one tax wrapper or asset to provide for you in retirement. Use all available allowances and reliefs as fully as possible each year.
- Use your business to fund your retirement tax efficiently but don’t gamble on it being the source of your retirement wealth.
- Don’t rely on anyone else for your wealth. Any inheritances or next generation business owners should be seen as a helpful boost.
- Take a long term view to retirement; inflation proofing a pension is very costly. You will see expenditure fall in some areas (e.g. fuel costs) but increase in others (e.g. gas, electricity and holiday costs) so you will need to plan for a bigger fund than you may imagine.
- Review your retirement planning annually and employ a qualified adviser to help.