Do You Have Enough Saved For Retirement? - Amyr Rocha Lima (Transcript)

Here is the full transcript of financial planner Amyr Rocha Lima’s talk titled “Do You Have Enough Saved For Retirement?” at TEDxKingstonUponThames 2024 conference.

Listen to the audio version here:

TRANSCRIPT:

The Dream of Retirement

Thank you. Retirement. It’s a word. It’s a dream. It’s the epitome of living the good life. Yet for many, it’s an enigma wrapped inside a maze of financial obscurity. We live in a world that perpetuates the idea of more. More gadgets, more trips, more experiences. But rarely does it tell us to think about later.

But what if we shift our lens? What if we shift our focus from all of this intentionally living for today to also intentionally planning for tomorrow? Today, I want to talk to you about that shift.

The shift towards understanding, managing, and reimagining your financial future. First, a brief background on me. I’ve worked in the financial services sector for the past 20 years, spending the first half of my career at two of the world’s largest asset managers.

The Impact of Inadequate Preparation

And today, I lead my own financial planning firm where we help successful professionals across the UK reduce taxes, invest smarter, and retire on their terms. Now, with that context in mind, let me assure you that I’ve observed the ramifications of inadequate preparation for retirement many, many times. The impact is often understated, not necessarily disastrous, but invariably disheartening.

For example, did you know that in the UK, the average income for pensioner couples is around £2,200 per month? Now, I can almost hear your thoughts. Average?

Crunching the Numbers

But Amyr, I’m attending a TEDx talk. I’m not an average person. Point taken. But when we delve into the specifics, it becomes glaringly clear that a substantial number of people are underprepared for retirement. Let’s crunch the numbers. According to a recent survey by the Pensions and Lifetime Savings Association, to live comfortably in retirement, a couple would need an income of approximately £3,500 per month, assuming no lingering housing costs, such as a mortgage or rent.

Real-Life Consequences

So while the average income for pensioner couples of £2,200 per month is no pittance, it’s far removed from the £3,500 per month figure you would need to live the good life. But numbers can be faceless. So let’s hear some stories.

You might have come across a neighbour, an elderly neighbour, who’s still working part-time, driven by necessity rather than choice. Or maybe you know someone who has had to downsize their comfortable family home for a smaller, more affordable space, losing cherished memories in the process. To bring this closer to home, let me share with you a story about Sarah, one of the individuals I have the privilege to advise in my financial planning practice.

Sarah’s Story

Sarah has recently found herself facing a financially challenging position due to her parents’ lack of planning. When her father passed away, he left behind Sarah’s mother with minimal financial resources and just a small income from a couple of inherited pensions. This has necessitated a drastic change in my client’s lifestyle, forcing her to accommodate her mother in her home and take over her financial support.

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These aren’t mere anecdotes. They’re stark reminders. They highlight the very real consequences of taking a back seat in your own financial planning.

An Exercise in Financial Awareness

Now, as someone who dedicates his professional life to helping successful professionals plan for their retirement, I’ve realised that as long as people have enough money to sustain their day-to-day life, they often adopt a rather unconscious attitude towards money. So I invite you all to stand up for a moment and participate in an exercise with me. And if you can’t stand up for any reason, please feel free to join in by raising your hand.

And if you’re watching at home, please feel free to join in too. I’m going to ask you three questions. Ready?

Question 1: How Much Money Do You Have on You?

Okay. So here’s the first question. Without looking in your purse or wallet, do you know how much money you have on you right now? If you do, please stay standing. If not, please take a seat. So in my experience, about a third of you would be sitting down by now.

Question 2: Can You Account for Your Last £100?

Feels about right. Okay. So, here’s the second question. Think of the last time you withdrew £100 from a cash machine or made a transaction of that amount. Can you account for it? If you can, and you know what you spent that money on, stay on your feet.

Otherwise, please sit. Typically, about half of those left standing would be sitting down by now. So far, so good.

Question 3: Can You Detail Your Expenses from Last Month?

Okay. So, here’s the third and final question. Can you detail your expenses from last month? If you can, and perhaps you have a spreadsheet at home and you can tell me exactly how much you spent last month, stay on your feet. Otherwise, please sit. Now, surprisingly, most people can’t account for what their lifestyle actually costs.

So, for those still standing, congratulations. You are more financially conscious than most. Let’s give them a round of applause.

The Challenge of Financial Planning

Thank you. What’s astonishing is that, even in the age of personal finance apps and personal finance gurus on social media, I’ve found these questions continue to stump most people time and time again. This lack of financial awareness poses a serious challenge for us financial planners.

Our challenge is not just about making you aware of what financial planning is and why it’s important, but tailoring our message to those who are mostly unconscious about their money. And this is especially true for those who seem to have it all together in other aspects of their life. You see, your money has all these roles to play.

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The Expiration Date on Our Earnings

Today, the income you make from your employment or from your business, caters to your current lifestyle choices, services past debts, and hopefully, some of it goes towards building your financial future.

But there’s an expiration date on our earnings. When the time comes, it’s your assets, what you own, that needs to carry the baton and support your lifestyle costs.

So, how can we ensure that the baton pass doesn’t lead to a fall? Imagine for a moment your ideal retirement. I invite you to close your eyes if you wish and step into that dream.

Envisioning Your Dream Retirement

Can you feel the warmth of the sun touching your skin on a pristine beach? Or do you hear the crunch of gravel beneath your feet as you wander through a trail? Or perhaps you smell the aroma of freshly brewed coffee from bustling cafes in quaint European towns.

Believe it or not, folks, but this might be the most pivotal part of your financial journey towards living the good life. Yes, you need to know your numbers, but knowing how much you need to ensure your dream retirement becomes a reality is completely intertwined with knowing what your dream retirement looks like in the first place. What gets measured gets managed.

Introducing the Rule of 375

So, once you have a clear vision of what the good life means to you, how can you figure out the size of the investment pot needed to achieve it? Well, let me introduce you to a handy rule of thumb called the Rule of 375. So, please take a moment and pull out your phone and open the calculator app.

And while you’re doing that, the Rule of 375 enables you to estimate the size of the nest egg you would need today in order to sustain whatever monthly spending requirement you have throughout a 30-year retirement, which, incidentally, somewhat matches the average life expectancy for a couple retiring in their 60s.

The Rule of 375 is based on a well-known retirement planning guideline called the 4% Rule, but it takes into account the fact that most of us think of our expenses on a monthly basis and it also makes a rough allowance for tax at 20%, as most of us think of our expenses net of tax. So, let’s work through a practical example together.

A Practical Example

Imagine that you have worked through your vision of your ideal retirement and you’ve figured out that you need an income of £3,500 per month to achieve it. To gauge the size of the investment pot required to sustain this level of spending, simply multiply this monthly spending requirement by 375. So, in this example, you would type 3,500 times 375 and when you press equal, you’ll see a number that reads 1,312,500.

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So, using the Rule of 375, if you were retiring today and planning on spending £3,500 per month for the next 30 years, you’d need to have a nest egg of just over £1.3 million. Now, let that number sink in for a moment. £1.3 million.

The Importance of Planning and Preparing

It’s quite the figure, isn’t it? But this is why we’re here today. The Rule of 375 serves as a reality check that underscores the importance of being conscious of your financial journey and hopefully, this drives home the importance of not just dreaming, but planning, strategising and preparing.

Think of it this way. Every penny you save, every investment you make, is a step towards your version of that number. Every financial decision has the potential to bring you closer to that sun-soaked beach or that aroma-filled European cafe.

The Need for a Clear Financial Plan

But, without a clear financial plan and taking the proactive steps needed to achieve it, the gap between where you are now and your version of that £1.3 million might just feel insurmountable. Now, it’s pivotal to underscore that this, of course, is only a rough estimate. The intricacies of financial planning often require more granular analysis.

So, consider working with a certified financial planner to help you further refine this figure, incorporating elements like the state pension and other income sources that you might be entitled to in retirement, the effects of inflation, the effects of longevity, the effects of long-term financial market behaviours, etc., etc., etc. But use this rule of thumb and take a moment to evaluate your current financial status. How much have you stowed away for your retirement?

Aligning Your Financial Trajectory with Your Vision

And at what rate are you adding to it? Does your current financial trajectory align with your vision for retirement? If not, knowing the gap is the first step in bridging it.

And remember, creating a financial plan shouldn’t be a one-off exercise. A static financial plan is like an outdated map. So, regularly review your plan, refine your goals, and ensure you keep the cycle going.

Actively Plan for the Good Life

Because only by adapting can we hope to keep pace with our dreams and the ever-changing realities of life. So, don’t just dream of the good life. Actively plan for it.

The blueprint is in your hands. Don’t let it fade away. Take the steps required to shape your financial future with purpose and excitement. After all, tomorrow isn’t just a new day. It’s your good life waiting to unfold. Thank you.

Do You Have Enough Saved For Retirement? – Amyr Rocha Lima (Transcript)