Hey everyone and welcome to another deep dive.
This time we're looking into a topic that's probably on everyone's mind at some point.
Retirement planning.
Yeah, for sure.
You sent over a YouTube video from Time to Retire with Eric sharing his personal approach.
Right.
And it's surprisingly relatable.
It is.
Yeah, it's really interesting.
He seems like a pretty normal guy just trying to figure it all out.
Exactly.
So we're going to dig into his method and see if it works for you guys too.
So Eric actually outlines two main ways to kind of assess if you've saved enough.
And then later in the video, there's this really cool twist.
Oh yeah.
It's like a ha moment he has.
Which could have totally changed his strategy.
For sure.
I'll definitely get to that.
But let's start with the first part, which is all about understanding your spending.
Right.
Because you can't really plan for the future if you don't know where your money is going
now.
Exactly.
So Eric really dives deep into analyzing your current spending habits.
Okay.
So how does he suggest we do that?
Well he recommends looking at your bank statements for an entire year.
An entire year.
Yeah, a whole year.
Why a whole year?
Because it helps you catch those seasonal variations in your spending.
Oh, like those holiday sprees we all know and love.
Exactly.
Like Christmas gifts or summer vacations, things like that.
Yeah, that makes sense.
It's easy to underestimate those costs if you're only looking at one or two months.
Yeah, exactly.
A full year gives you a much more accurate picture.
Plus maybe you'll even spot some areas where you could cut back and save before you retire.
Absolutely.
It's all about being proactive.
Two birds, one stone.
Exactly.
So the key takeaway here is to arrive at a realistic monthly expenditure number.
Yes.
That number becomes like the foundation of your entire retirement plan.
It's all about knowing where you stand right now so you can plan for the future.
Exactly.
All right.
So we've analyzed our spending thanks to Eric's first method.
Right.
How do we actually know if we'll have enough coming in during retirement?
That's where Eric's second method comes in.
Okay.
It's all about income.
Income.
Specifically identifying your income sources and when you can access them.
Don't you?
So Eric actually uses this hypothetical couple, Sue and Bob, to kind of illustrate this.
Okay.
And they've got a combination of pensions, which is super common.
Right.
And that's actually where I started to get a little confused.
Yeah.
So he mentions state pensions and defined benefit pensions and defined contribution
pensions.
Right.
Like what even are all those?
Yes.
So let's break those down.
Okay.
So first you have the state pension.
Okay.
Think of that as your foundation.
Okay.
It's funded by those national insurance contributions you make while you're working.
Gotcha.
So like everyone gets the same amount once they reach retirement age?
Not necessarily.
The amount you get depends on your individual national insurance record.
Okay.
So that's like a guaranteed income from the government once you hit state pension age.
Okay.
That makes sense.
What about those other pension types?
Right.
So then you have defined benefit and defined contribution.
So a defined benefit pension is more common in like the public sector.
Okay.
Think teachers, NHS workers, civil servants.
Gotcha.
And with a defined benefit pension, the amount you get at retirement is predetermined.
Okay.
So that's really based on like your final salary and how long you worked for that employer.
So it's kind of like a promise like work for us for this long and we'll give you this much
each month when you retire.
Exactly.
Yeah.
Okay.
That makes sense.
And what about defined contribution?
So a defined contribution pension is more common in the private sector these days.
Okay.
And with this type, you contribute a certain amount each month.
Your employer often meshes some of it.
Okay.
And that money is invested.
Okay.
So your final pot at retirement depends on how well those investments perform.
Ah, so it's a little bit more of a gamble.
Yeah.
It is a bit riskier, yeah.
Because the outcome isn't guaranteed like it is with defined benefit.
Exactly.
Yeah.
Higher potential returns, but also the risk of lower returns depending on how the markets
do.
Makes sense.
So how does that 80% rule fit into all of this?
Right.
So the 80% rule is this common guideline that suggests you'll need about 80% of your pre-retirement
income to maintain your current lifestyle.
Okay.
And you'll need to actually retire.
Okay.
So it's a decent starting point, but Eric advocates for a more personalized approach.
Okay.
Which is where his method of calculating that monthly spending becomes really valuable.
Right.
So instead of just relying on some general rule of thumb, you tailor it to your actual
spending.
Exactly, yeah.
Okay.
And then Eric also talks about consolidating your pensions.
Right.
He does, yeah.
He has like seven of them.
He did.
He had seven different pensions.
Wow.
And he ended up combining them all into a SIPP.
SIPP.
Which stands for a self-invested personal pension.
Okay.
And this gave him more control and simplified managing his retirement savings.
That sounds like a pretty smart move, especially if you've had several jobs throughout your
career.
It is.
Yeah, definitely something to consider if you're in that situation.
Okay.
So we've got the spending part down.
We know what kinds of income we might have.
Right.
But how does knowing the timing of that income affect the overall plan?
That's a great question.
Like does it even matter?
Yeah, it actually does.
It's a really crucial point.
All right.
So let's go back to Eric's example of Sue and Bob.
Okay.
They want to retire at 55.
Okay.
But their state pension won't kick in until they're 67.
Right.
So they've got that 12-year gap.
Exactly.
Okay.
They've got two distinct phases they need to plan for.
Pre-state pension and post-state pension.
Exactly.
Okay.
And they have to calculate their income needs for each phase separately.
Okay.
That makes sense.
They're factored in potential growth on their investments.
He used a conservative 6%.
Okay.
And he also looked at different drawdown strategies for their defined contribution
pensions to make sure they don't run out of money before the state pension starts.
Right.
That's really important.
Exactly.
It's all about matching your income to your expenses throughout retirement.
Okay.
And this is where Eric has his big revelation right.
This is the good part.
All right.
Eric, what did Eric discover that could have changed everything?
This is a part that blew my mind.
Okay.
So after meticulously planning, you know, doing all the calculations and figuring out
his retirement, Eric discovered that many pension providers are actually required to
give you an advance on your pension funds specifically to get professional financial
advice.
Well, seriously, you can use your pension money to pay for financial advice.
Yeah.
Crazy, right?
Why didn't he know this sooner?
It's one of those things that's often like buried in the fine print, you know.
Most people wouldn't even think to ask about it.
This is huge.
Like this changes everything.
It really does.
So if you're feeling overwhelmed by all this, you know, the calculations and the pension
jargon and all that, you can actually use your own pension to hire a professional to
guide you through it.
Exactly.
It's like an investment in peace of mind, you know.
Having a financial advisor can help you create a personalized plan that's tailored to your
specific situation and it just removes so much of the guesswork and the uncertainty.
I could see why Eric wished he'd known this from the start.
Oh, absolutely.
It makes you wonder how many people are out there struggling to do this all on their own
when this option exists.
Right.
It's definitely a game changer.
It is.
So let's bring this back to our listeners for a second.
Okay.
Have you taken the time to really understand your spending habits?
Yeah.
Do you have a clear picture of when your various pensions will become available?
And most importantly, have you considered reaching out to a financial advisor?
Yeah.
They might be more accessible than you think, especially with this option of using pension
funds to cover the cost.
Exactly.
It's all about planning for a future that you're excited about.
Right.
Retirement planning isn't just about crunching numbers.
It's about designing a future that you're genuinely excited about.
You know, a future where you feel confident and financially secure.
Absolutely.
And having a solid plan and maybe even seeking some expert guidance to create that plan can
make all the difference.
Couldn't agree more.
Awesome.
Well, thanks for joining us on this deep dive into retirement planning.
Yeah.
Thanks for listening, everyone.
We hope you feel empowered to take those next steps towards a fulfilling and financially
secure retirement.
Please take charge of your future.