How to not run out of money in retirement

30:45And the lowest from peak to trough was minus 46%. So yeah, very, very painful. Really high inflation, an oil shock, one of the worst sets of returns that we had. And I looked at different types and ways of managing those risks. So basically, the conclusion at the end of the video is that none of the options I looked at actually worked. And we'll go into some of the options now. but it really does depend on um how you manage those particular risks in retirement and i think adapting the spending is going to be the key thing so should we maybe go over the the different ones that we talked about in the video the video is called don't retire until you know this one risk i thought it was excellent oh thank you honestly a really good video um yeah and what you basically did was go okay these are the the ways that people talk about about managing sequencing risk yeah high cash balance bond ladders yeah you went through them all he just was like no no no basically pick the worst period and if you're just unfortunate enough to to kind of retire at this point we laugh but you know it was i was sat there like shit yeah and that was definitely on reflection it was definitely a failure in in my scripting no it wasn't in fact you can't you You can't like wooly up the message.

32:03It was factual. It was important information. And you did give a thing at the end. I know what you mean. You want to tie it up in a neat bow at the end and go, but don't worry. It's all going to be okay. But sometimes it's just not. And I was like, see you next week. Like and subscribe. Yeah. So I don't think, don't beat yourself up about delivering the facts. Yeah. And in a way, because now people can prepare for that. But there was people in that year that probably really struggled. I'm sure they did okay in the end. People survived, don't they? But it's important that people know because even I'm guilty of going, three-year cash buffer, that'll be enough.

32:39And in reality, I mean, let's go through it. Yes. So what I did in the video is we have two different kind of cash flow models and I kind of played about and used some of the data. And one, which is, this isn't called point, you can basically look at the amount of assets someone's got, look at the fixed return and it basically calculates this is exactly the amount that you can spend in retirement so it goes based on all these assumptions if you want money to last to 100 this is the amount of money that you can spend per year and it's really useful because it basically just calculates that exact amount factors in tax and all the rest of it really easy the problem is is what's called deterministic modeling where you factor in a straight line return and that's not how it works in reality returns are really variable so what i did in that one as well.

33:21Okay, so we've got the target that the kind of the straight line analysis is saying that the money can last for. What happens if we now use these different kind of ways and methods to manage sequence risk? So we keep that spending, which says on a straight line, we're going to get to 100. But then we overlay it on a really bad time. So I use the MSCI world, 100 % equity. And then I use basic, which is all in shares. And then I had a look at these particular buffer strategies. So these strategies that I'm going to go over, they're designed basically to manage that sequence risk. So if the risk is that the order of returns is going to be really damaging, can we maybe look at our assets and our portfolio and make some adjustments to them so that we can maybe deflect some of the downturn?

34:09Or like kind of outlive it or, you know, like step away from needing to take money out the portfolio and relying on some other form of income to see out the dip, essentially. Exactly, exactly. And I think when I went through in the video, what I kind of was saying was that if we use that kind of coming down the mountain analogy, a cash buffer is kind of like camping out in a tent. And just waiting for the storm to pass. Yeah, wait for the storm. It was a great analogy. Yeah, thank you. You kept going, I know it's shit, but... This is good. As a man who likes a mountain analogy, I could appreciate it.

34:42Exactly. Yeah, where is your Welsh quiet mountain? We'll get onto that later. Anyway, don't want to lose the listeners on it. Anyway, so how does a cash buffer work? A cash buffer, basically, you hold two, three years in cash. The environment now for cash is much more favorable than it used to be. You're still not likely going to beat inflation or hardly going to at all. But the idea is that if you see a significant market decline, you then draw on your cash. And that basically lessens the pound cost ravaging of the portfolio. It means when the portfolio's down, you're not having to in cash your portfolio for your spending because you're going to spend on the cash.

35:17And when we have a look at, there was a paper by a guy called Wade Fowle, we had a look at his kind of analysis across various years of the US market and he says, well, actually, if you skip a year or two, when that happens, when the market pulls back, it has a really big difference. It can really impact, have a difference on how long the portfolio lasts. Now, when I did it in 1973, it did not work. However, that's just because that's a really exaggerated option. So I think for most market declines, a cash buffer, well, it's certainly going to be better than nothing, and it is going to help somewhat as far as how long your portfolio lasts.

35:54Other options we looked at was what's called a bond ladder. So you start to get a little bit technical, but it's not really that technical. So what's a bond? It's an IRU to a company or government. And how a bond ladder works is basically you look at your requirements of income and depending on the bond, so gilts are loans to the UK, basically to the UK government, I should say. And they're considered the most secure option that we have basically in financial markets, certainly in the UK anyway, because if the UK is struggling, they can just print more money effectively. And the idea is how kind of a bond ladder works is you're basically the key benefit of a bond is if you hold it to maturity if it is a single bond you basically just get your capital back so it's ultimately backed by the uk government you'll get a certain yield on it which is is risen now so you'll get you know four percent or whatever and ultimately when it matures you just take your cash back and you use it for spending so the idea is that your bond ladder basically can sometimes give you a slightly better return than a cash buffer and you match your your income needs for your time horizon because that is a big big problem with sequence risk if you're all equity in retirement then the challenge you're going to have is what happens if i pick the unlucky time what happens if it is the next major downturn and i'm needing to draw down on the money besides law for the millennials that yeah yeah exactly yeah i feel like we will land but yeah so the how did the bottom ladder do pretty bad pretty bad 1973 was really yeah i And that's, again, that's the thing I regret about messaging, which is that I think what I would have reframed it to is that it works in most scenarios.

37:34It's just not in all. So what you're saying is bad is people ran out of money. Yes. And it was like 70 years old, wasn't it? Oh, yeah, it was in the 70s. Yeah, yeah. It was quick that they ran out of money. So starting in retirement at 60 and it was running out in the 70s as opposed to the initial model, which has been based on a straight line, which says, right, you're going to go to 100. however the one thing that I wish I'd kind of added to that which is the key thing and it comes back to that adaptive spending is that it's so easy when we look at these models that we just kind of we look forward onto decades and we think you know I'm just going to continue if we see a market pullback or if we see things go better than expected I'm just going to continue on the exact same path exactly like the example I gave with the four percent rule and the truth of the matter is the way I think that you can counteract that and make a success out of your retirement is of course consider how to deal with these risks, but be able and prepared to adapt, which is that if you have your kind of your core, so what we do with financial planning with clients is we split their expenditure into keeping the lights on, living an okay life, and then discretionary and lifestyle.

38:41So discretionary is kind of like the extra nice bits you might like, and lifestyle is like the ideal kind of, this is what I would be like if I was, you know, going down Edgewood a casino every weekend or whatever he's definitely a friend of the podcast he knows where we like to go after we finish filming i did not attend the casino but yeah exactly that and because then the idea being is that ultimately if we do see something really significant decline then yes you can use things techniques like a bond ladder a cash ladder a cash buffer but also the most powerful thing is actually just to adapt your behavior.

39:18So at the heart of it, what basically I think everyone needs in retirement is a financial plan, because that's the thing that's actually going to get you there. It's not magic. It is just something where what you're doing if you're creating a financial plan is you're accepting that you are going to change, the markets are going to change, your assumptions are going to change, but that's okay. That's okay because that's life. It's crazy to think of it any other way, isn't it? Imagine you were, if you think about something that's just 30 40 years old you know you're never going to be able to predict that with perfect precision a cash flow plan is something you continue have to adapt so that you deal with and you roll the punches the target keeps moving even after retirement it's still moving and yeah so do you think then that you have say a cash buffer or bond ladder an annuity maybe and then you adapt your spending as well and is that the solution if you just so happen to be the person that lands on the next 1973 like the worst year ever can you survive that yeah I I think so as long as and I think it's going to be I absolutely think so I think if you listen to a podcast like this you're putting yourself in a great position because you're engaged the people who I really worry about the people who don't engage with the finances and we talked about on the last episode but it's basically just because it's an empowering thing we have more control of our finances it means we can write our own future there's a downside to that though which means our own future is our own responsibility and one of my concerns and it's very difficult when i communicate this because i want to communicate two things at the same time which sound contradictory but they're not which is i'm a complete believer that equities are a wonder class asset that they are just incredible you're tapping into human ingenuity and all of the data shows is that that's what drives returns and builds wealth over time equities owning small bits companies of the great companies in the world to the same extent just going over some of the data here so this is the msi world uh uh bear markets where the market base falls by 20 or more what are you laughing at they're so good but let's look at all the shit periods 100 yeah yeah um and my kind of my my key thing is the the last it's been a while since we've had like a sustained bear market the last one was nine months uh then before was one month then quick recoveries really quick recoveries yeah and it goes back to 2003 since we had a long one which was 31 months.

41:35And then before that, you're getting all the way back into the 70s, which was 21 months, but a 46 % decline on the MSCI world, which is seriously painful. But the reason why I think it's important to mention that is that it's just about if you know what you're dealing with, then you can adapt to it. It's when you don't know. And my concern is that there's a ton of new investors who, frankly, we might not have been through a substantial prolonged decline. And I think if we can prepare for it, if we can be aware of it, we're going to be so much better placed to adapt and to beat it, basically. There's a lot of people, ourselves included, that have never lived through years of stagnation or decline in key markets like America.

42:20We lived through the early 2000s, but we weren't actively participating in the market in a meaningful sense. all I've ever really known as an investor is American dominance, America recovering quickly, and maybe they will. But yeah, like you say, the COVID bubble, like buy the dip is a slogan that's born out of recoveries that bear markets last a couple of months, isn't it? Would people still be singing that at the top of their voices if it had been three years? And my concern is, especially in this environment for the next one, is that there's one big thing that has changed since those times, which is everyone has all the information in their pocket all the time.

42:56You know, and that's the thing, because you know what it's like, even like we're experiencing a current slight bit of volatility, it's ever present, isn't it? You know, the minute you turn on your phone, you're getting so many notifications. The speed at which you can act on the info as well. So you can sell your whole portfolio on your toilet in a second. In the past, you'd have had to have called a broker who would have probably tried to talk you down in the moment. You'd have had to have engaged with the, you'd have had to stumble across a newspaper or turn the TV on. now like you say it's forced to you through your feeds you you get it and you can you can switch to another app and sell everything in in a split second exactly whilst you're still emotional is it good like i'm a big proponent fan of buying the dip is it good to buy more or i mean if you're in your retirement you just wait it out and because you can see the big returns when the market is down so what do you normally advise your clients to do when there's a downturn if they're comfortable Yeah, sure.

43:49So if they're in the accumulation stage, then I'm absolutely encouraging them to, you know, if you think about the markets, it's one of the only things where the sale's on and we run out of the store. You know, it really is crazy that we don't take advantage of that. And especially for someone who's accumulating, this is an opportunity. It's an opportunity to build wealth. The problem is in retirement, you might not have that income. So, you know, the definition of retirement for many is I've stopped work. So you don't have extra money to put into the markets, basically. and also as well is that the difference from a psychological standpoint in retirement and which is why I think it is really the time where an advisor adds a lot of value is that there's no two ways about it if you're someone who's worked for decades and then you've kind of stopped working you've not only got more time to be very aware of the market conditions but also you're thinking I don't have more you know I don't have the comfort of my my earnings so you really do need that.

44:43Yeah, you need a strategy, whichever way it comes in. And what we do with clients is that when we build their financial plans, we go, okay, this is normal market conditions. This is what we expect, but here's also five stress tests. And I want to do that. And I want to show you the stress test because I'm going to tell you that when this happens, not an if, when this happens, I want you to know it's going to be okay because we've already factored in a significant decline, but there are things we can do, like maybe make some adjustment to expenditure. because sometimes just having that kind of plan about what happens when things don't go to plan can stop you from losing sight and ruining a perfectly good multi-decade plan over some events basically what are some of these stress tests that sounds really useful yeah yeah so so we look so the company i work for flying close advice so we look at um a mixture we look at a significant market drop based on their what level of risk they're taking so you know if we have a look at, you know, for example, 100 % equity portfolio would be appropriate to a significant market drop.

45:42We also then look at more sustained lower growth rates. We look at a stress test if one person dies early. That's actually a stress test not many people think about. If you lose one person's state pension, maybe they might have to find benefit schemes where it drops from a full pension to a spousal provision. That can make a really big difference. We look at sustained higher inflation. That's the one that actually always tends to catch people out. So what happens if inflation was just much longer over time. Even like three, 4 % rather than 2 % is huge, right? Exactly. Yeah, it's massive. Low growth, first thing I've said.

46:11And then also we'll look at care as well, which is a really difficult one. Now, unless you're exceptionally wealthy, one of those is probably going to flag. So we kind of put all traffic light things on and being like, this is going to 100, you're fine. This is running out after your normal life expectancy, but earlier than 100 and this one's running out before normal life expectancy and kind of that's like a red flag but it's not necessarily about a case of if things go really bad we should completely you know if things go really bad you can't retire it's a case of okay what are the mitigations there what other things can we do because there are always other levers to pull and one of the big ones might be okay well you know we're using your target expenditure you know we're using your aspirational expenditure if you just drop down a grand or so or a couple of grand a year you know you're going to be fine there are also others like for example some people plan to downsize some people plan to equity release we could also then use that to spark a conversation about annuities if somebody wants that additional security so it's always kind of a guide to make those strategic decisions do you oh you were talking before about um equities and you were saying you know if you're 100 equities you kind of need to have this flexibility within the portfolio or within your plan because you're exposed to the downturns.

47:30Do you think that people should be 100 % equities within retirement? So really interesting. There was a paper that came out called Beyond the Status Quo, a critical assessment of life cycle investment advice. It was 2023, so not that long ago. And I know that sounds really jargony, but kind of the conclusion is what it did is the traditional kind of thinking around retirement investing is that you de-risk when you come to retire. So basically, if you take 100 and minus your age, that's your equity allocation. So basically, if you're a position where you're 60, that means you'd have a 40 % equity allocation, and the rest would be more defensive assets like bonds.

48:07And many people will have thought, just naturally, oh yeah, I'll de-risk because I'm going to start to need the money. Now, what this paper did is it looked at a ton of different scenarios, and it kind of threw that conclusion a bit on its head. And it said, okay, so if someone is 100 % equity in retirement, If we look at a lot of solutions, a lot of options and backtests, are they actually going to be better off? And what it found was that their return was not only better, but also that their failure rates compared to, for example, 60 % equity, 4 % bond portfolio was much less as well. Now, I think that's a really interesting conclusion because it kind of comes back to the thing which is probably intuitively true if you think about it, which is that if we know that equities are going to grow much more than bonds in general, they're going to beat inflation to a higher rate.

48:54Surely it would be logical that the higher equity portfolio you have, the better chance you have of not running out of money. Considering not running out of money is defined by inflation, it's defined by a ton of other things. Now, I'm a big supporter of people being weighted, as long as they're comfortable with it, with higher equity allocations. I think and this is not going to counter what I was saying before it's just add a bit of nuance I think we need to have a really sober conversation with ourselves and make sure the plan factors in how bad things can actually get if you are 100 % equity because my personal take having looked at the research looked at all the bits is that the problem here is the human element frankly which is that you only get one shot of retirement and it's all well and good as running a ton of back tests and running some of academic data but if you are that individual who is retiring at the worst possible time it's not going to be much comfort if you haven't built in a plan which is going to allow you to adapt it's not going to be much comfortable if you're not comfortable to adapt so one of the things that whether it's a cash buffer whether it's annuities whether it's a you know a mixture even some bonds in the portfolio is that the theory is anyway it reduces the variance of outcomes.

50:09So with equities, things are going to go really well, but it also could go quite badly if you're really unlucky. If you have more diversification in the portfolio and more techniques, you're going to shorten that range of outcomes in theory. No one at the end of the day can predict the future. But because you only get one retirement, is that necessarily a bad thing? Do you want to try and shoot for the moon if that means that you might actually have to compromise on going on the great holidays when you are fit and healthy and able to do so in your 60s it's really challenging to get that balance right yeah if you know that 100 equities produces this range of really bad to really good and you can you can thin that out to you know okay to all right then then that might that might be acceptable one thing i think about though is you know i often say oh i'll be 100 equities in retirement and i'll have a three-year cash buffer i'm not 100 equities and am I?

51:01I've got a three-year cash buffer. So a portion of my portfolio is out of the market. So I have protected. Bond ladder and annuity. It's not a 60-40 portfolio in the traditional sense, but a large portion of my portfolio is outside of the market, right? So I have de-risked. Then that's certainly something to consider is what you're talking about. Is you're looking at your asset allocation sort of holistically or looking at the big picture? So for example, and you could look at this in a ton of different ways. You could go, well, you might have a defined benefit scheme that's in payment and that is annuity-like.

51:35So you might have your state pension. State pension is another form of annuity. Equity and property. Exactly. If you're going to do equity, obviously it depends if you can realise it. But all these things do need to say. But it's there. Yeah. It is there. That's a good question. Why do we always say bonds and stocks? Why don't we say like gold, other assets as well in retirement? Do a lot of your clients have very diverse portfolios? We do have some who have allocation to commodities. The data is mixed, if I'm being honest, in relation to, and again, it depends who you're listening to in relation to it.

52:07I've never been hugely convinced that gold is a brilliant option in retirement. Some say, and I think it's probably the paper I tend to, Campbell Harvey, The Gold Dilemma, the paper that I tend to kind of reference is that one in relation to it, which basically showed that gold is a fantastic hedge against inflation, but just over a time period, which is impractical. Multi-generational. multi-generational not more people will argue because it's done well recently gold hasn't it well that's that's kind of like it's a recency bias finance issue yeah what i want everyone says people say that about everything don't they it's like like what they've just done about tech stocks are they're always going to do great it's what they always do about gold about crypto they look over a really short space of time and the way i kind of look at it is i really look in the data and obviously we have tons of processes in the company i work for where we kind of rigorously assess it but i have a real deep responsibility for my clients to make sure that we're all over it and that we're not just making a decision because of hubris because of you know that's the way that everyone's saying is so we have to kind of build portfolios based on what's always worked not just what's working now um because they're multi-decade plans so can gold um all commodities feature in a portfolio yes uh i i personally don't think that they should have for particularly high allocation.

53:21Yeah, probably the reason countries hold gold is because they think multi-generationally, you know, or family estates, these kind of like, they've got billions and they want to protect that spending power over 200 or 300 years. But for someone looking to build, I mean, it's hard to say, isn't it? Because gold is having such a great time at the minute. And since the introduction of like the ETFs, gold has done pretty well, you know, in the early 2000s. So, but you know, I guess it's like Bitcoin, isn't it? It's the same argument. it's there's there's room for an allocation it might do great for your portfolio but should it be the main plan yeah exactly maybe not yeah exactly and then that that's there the question is to ask yourself um ultimately but if as long as you're investing as long as you know you're thinking about things that you're doing a great job what the person then who's so right now at the time of recording this just you know we it might not be the case because the markets are so erratic sure they're having a bad time yeah so if you're the kind of person that's retiring right now what you've seen in the last few years is high inflation so the real terms value of your pension pot has been ravaged and now you're entering a period where the markets are volatile you know they're volatile and they're declining what does that person do you know what what would you be saying to them as a client you know right now yeah so i think the key thing that we're doing with someone who's coming to retire is that the ideal time to properly plan for retirement is not the day you're retiring it's actually frankly the five years prior you know you want to make sure that if you're going to use these kind of techniques whether it's cash buffer bond larder annuities whether it's considered actually released later in life you know you want to have it so that it's kind of featured into a plan um what i would say to the individuals who are at that point is that the non-negotiable for me is a really robust financial plan and i know that's kind of the thing i constantly go back to i just don't know any other way that you're supposed to work out whether you're making a decision based on sentiment on what's happening today or whether it's actually in your long-term interests and I think the plan is the only way you can actually unlock that you can go okay am I in trouble I also would say as well just bear in mind that the market moves on average about two percent per day a decline of you know between the high and the low of 10-15 percent in a year is very normal there's a difference between the calendar year and the entry year, which is basically like the calendar year is basically what people report on.

55:40That's the end of the year return. But the entry year is the worst possible drop in the middle of the year, you know, or at some point during the year. And often that range, especially for the equity market, can be 10, 15%. So you might have a very different view in September as you do in January. So what I would also say is that they need to invest or they need to really consider about when they're going to potentially make changes and what they're going to be, you know when they're going to have a look at making an adjustment to the plan if appropriate because you don't want to be looking at your portfolio every other week and making constant changes like you need you need to have some and frankly that's one of the things I think I like to think that I add a lot of value with my clients is it's that kind of having that bit of calm having that bit of perspective trying to be objective to the position because it's really difficult to be objective to your own situation if it's if the plan has been properly put in place it's like an unfortunate result but it's not an unexpected one.

56:38It's kind of like this could happen. I had a question the other day in this Q &A video I did where they were like, I understand your point around building a cash buffer but what do I do if I'm building the buffer and the market starts crashing and it's like they're almost, they started a bit late there. They should have been building the buffer five, ten years before. So at the point they come to draw down that it's there. So at what age or how many years before would the retirement planning start do you think? Yeah, and this is where the unique elements... So broadly, the retirement plan starts as soon as possible because you're building a retirement plan now, you're building a retirement plan.

57:13But as far as the actual tactics in relation to how we're going to draw the money down and when, three to five years prior is when you should be thinking about putting these things in place. Because if that's a general market cycle, like your question, you don't want to get caught out with it. Now, there is real nuance here because what tends to happen when I'm dealing with clients is that there's lots of kind of adjustments here where three to five years out, it's unlikely you're going to know the exact day you're going to retire. It's unlikely that you might have even thought, actually, I might actually just reduce hours.

57:43I might do, all these things make a big difference because they can have a big impact on actually how much capital you're going to need to draw down on the portfolio. So if you're doing this yourself and you don't have a plan, just think about, okay, how am I going to approach this problem, this sequence risk problem? And then the longer you can give yourself to consider it in advance, the better. because then you know if you're coming at it if if you're i'm going to retire at 60 by hook or by crook and that's my set day and you don't really plan around that you might get there and go it's not realistic whereas if five years before you go i want to retire in the next few years they go oh i'll wait another year because the market's had a bad year or i'll go part-time and these things extend out the life of the portfolio significantly oh it makes a huge difference you have to having this conversation with a client yesterday uh one year difference in them retiring, they were trying to bring it forward in that instance.

58:32I was like, this makes a really big difference because they're a high earner and we went from an extra year of compounded return, an extra year of really solid contributions to drawing down on the portfolio. Difference is massive. Yeah, it made a really big difference. So yeah, these things are worth considering. It's all flexibility, isn't it? It's just this ability to adjust your plan and this constantly moving target throughout the whole process. And I think the thing that's great about this podcast and about the fact that, you know... It's too main. this guy this guy yeah i had to do it for you because you didn't yeah yeah no the thing is is that you know we're in a position where you can get such great information now the the challenge is you're going to have to deal with your own money but it's a really empowering thing if you think about it that way i think retirement planning is going to fundamentally change for the next couple of generations for sure you know we're going to we're all going to be auto enrolled so hopefully we'll have bigger flexible pension pots but the defined benefit schemes are going to be very scarce you know only teachers nhs a couple of private sector things but most people have defined benefit schemes um yeah it's going to be a completely different scenario and the onus has gone on to the individual for sure what about state pension um a big question there you know how do you think that people our age below 40 and below like 45 and below what what do you think about that i'd just like to thank you for awaking all the trolls in the comments right they're already there anytime i mentioned state pension i talked about paying back years in a video recently and he's like this guy's a joker if he thinks anyone 40 or unders getting a state pension i was just like wow first of all i wasn't i was saying 40 over other ones that maybe should consider buying years but yeah there's a real negative sentiment towards that i don't having done two videos on state ventures they've got a lot of views but oh god those comments like yeah it was just really sad i don't know what really pessimistic about it yeah i mean you can see why right i can because Because it's unsustainable in current format.

1:00:23Yeah, 100%. Can't triple lock forever. No, exactly. And I think you've done a great video on it. I think when you look at the old age dependency ratio, which is basically working people compared to people in retirement. This isn't just us. This is a global phenomenon. We're getting older, basically, and there are less people working. The problem is that we are kind of just kicking the can down the road as far as that issue. And people are looking at that and going, OK, does that mean we're actually going to get a state pension? My personal view, and it is just this, and anyone who gives you this answer, we can talk about the data, but it comes back to their personal view.

1:00:56I think that a dilution, not a stop, is going to be the reasons that's what's going to happen. I think you probably said the same. But the reason why is basically, so going on the stats, basically saying, I think this is ONS, which is maybe one of the IFS papers, I'll have to have a look at that. But people who have 66, 74, lowest incomes in the state pension makes 70 % of their income. The middle fifth is 45 % and the highest fifth is 20%. So even middle earners, it's a big part of their retirement income. I think what's more likely is it will get kicked out later. So we might be looking in our 70s.

1:01:30I could also see a dilution to the inflation adjustments from a triple lock to maybe a double lock. But the reason why I think I'm quite confident it will be there in some form is, okay, so your means test it, how are you going to do that without it being some horrible kind of self-reinforcing issue that okay you save more and therefore you incentivize people not to save exactly and then it becomes more expensive because of that we don't need that already like my whole time ever since i've done content has been please don't think pensions are a scam if you're a low earner you just thought well there's absolutely no point me saving because i will just get a state pension then and that that's like a counter intuitive system in that sense um and also it relies on the government making a very very hard very difficult decision politically i think it's so unpalatable yeah i think um it's part of national identity isn't it it's kind of nhs and state pension are these two big pillars of what it is to be british yeah and i think what like you say what will happen is it will be diluted down through um fiscal drag they won't uplift the amount as much so you relatively you'll get less and they'll they'll jack the age because actually whacking up the age a year or two that makes a big difference you can see it in terms of the whenever they put the age up the the total burden drops by a lot yeah um i think maybe long term i can see state pension becoming the social care kind of component it's like that's the thing that kicks in if you live long enough to need care yeah and it kind of pays for the care element almost but yeah i i sit with you and and people will call me naive that I think I think I can sit there and say I will get some form of state pension I don't know what that will be so it doesn't matter what age you get your pension and what type of pension is defined benefits or defined contribution I think 100 % you need to depending on how you what your ideal retirement looks like you know and we touched upon this in the last video was on which is that you do have this position now where because of the various tax wrappers that you can and because also the pot is flexible that you have a lot more control now the thing is with pensions is they are age restricted so at the moment it's 55 for most people listening to this will be 57 it could go up in addition i kind of wish they hadn't done that for me i really like the idea of 55 even if the state pension goes up because i think it allowed pensions to be this something that wasn't that far off for younger people why do they link it yeah it's like this 10-year drag i also like the idea of it being this sort of kind of midlife kind of once you're past this you have access to be more flexible around your wealth you can bridge that gap between that and state pension and then if they lift the state pension age i think people wouldn't be as like because it's almost like they take they're moving the the private pension my pension you know like the state pension i get it but no i agree i completely agree um but in answer to the question um yes you need to absolutely have a look at your income sources because some of them will be time restricted you might have a lifetime which means that you'll pay a penalty if you get access to it prior to 60.

1:04:25So how you draw down on your different income sources is going to be really key. You might have rental income, you might have a defined benefit scheme, you might be one of the lucky ones. So the NHS scheme, the younger people will be vastly in the 2015 scheme, which is linked to state pension age, I believe. The previous one was 60 or 65. So if you take it, the previous two schemes, if you take it earlier, you might get what's called early retirement factors, where they reduce your pension on the fact that you're going to retire early, because it's a guaranteed income for life. So basically, they say, right, if you take it early, all things being equal, you're going to be living longer.

1:04:58So we need to reduce that income. So you need to have a look at, you touched upon this before, about your overall asset allocation. How does it all fit together? Because it could allow you to be a bit more comfortable about being 100 % equity in retirement. You might be like, well, okay, I am comfortable with the fact that we could see a significant drop because I've got these other income sources and they're going to give me the backbone. And that's one of the things where annuity rates have risen currently, so they are a little bit higher. Some people like to secure that little bit of extra income.

1:05:30So whatever happens, there is something quite powerful about saying, whatever happens, I can keep the lights on. It doesn't really matter what the markets do. I'm still going to have a core level of expenditure met in retirement. It might not be living the high life, but it's going to give me that security. So yeah, the income order and how you're going to draw on it is a really crucial bit to have a look into. Yeah, I've got a friend who's a doctor who is, you know, generous pension in terms of like the numbers on paper, but uncertainty around what age you can access it. So he knows that, so he builds an ISA.

1:06:04Obviously, you know, the lifetime value as well, there was a concern in the past for doctors. And I know they scrapped them. Yeah, the lifetime allowance. I know they scrapped it mainly because of, you know, doctors were just going up. There's no point in me working here. He's worried that that will come back in at some point. So it's kind of understanding the products that you have and then working around the, you know, the nuance of them so that you can build a plan. Yeah, what happened with doctors was a real mess. They were, for high earners, they were getting, I won't go into the technicals because it gets really technical, but they were getting hit by annual allowance and lifetime allowance charges.

1:06:35So basically they would go into work and the way their pension is calculated, they'd basically come out with a tax charge. Did they get a bill? Yeah. It was like some of the consultants were getting like 50 grand bills to work. Yeah, it was a total joke. And just a real example of just the pension system just not working in reality. For the most highly skilled, useful, because the thing about a doctor is the older they are, the more valuable they get because they've got more experience in diagnosis. so at 50 odd you were getting all your like amazing consultants going yeah i'm not working because there's literally no point yeah yeah exactly exactly so that's a good example of where the importance of having a look at your income structures and how it works for you is going to be key in retirement the only benefit is that you know as for most people who are younger listening to this um you'll be a product of auto enrollment in general so you're going to probably have a flexible pot whether they're in a million different places this might be an issue but um it should mean that the sources from a pension side might be a bit simpler do you think people should consolidate yeah i think simplicity is really key i think also as well the only thing you've got to be really careful about with consolidation is that if their pensions which have been accumulated in uh earlier years the pension legislation was much more complicated so you've got stuff like guaranteed annuity rates growth rates potentially protected tax-free cash you don't want to be looking at a load of older pensions and just saying we'll throw them all together because because it's simple because you might be giving up some really valuable benefits if then if they're more modern if they're something that's occurred in the last kind of like five ten years it's less likely they're going to have these type of benefits so it's more likely going to be an administrative issue but do I believe one place is ideal yeah I think you want simplicity in your portfolio the idea that more complicated is better just isn't the truth you know i think it's called naive complexity and sometimes financial advisors are the worst culprits for this they go oh we're going to have loads of different things for no reason um you know because it looks like we're adding value it's not in my view um you know you want ultimately a relatively simple strategy to reduce life admin um because nobody likes speaking pension providers more than you have to and then finally if someone has just started to approach this topic where do you think they should start if they're like you know okay i'm five ten years out from retirement where do you think a good place to start is um i think there's a ton of great content out there uh frankly that's a really good place to start to kind of to learn a little bit more plug to my channel james shack does great things pete matthews a huge mentor of mine i know you had him on i think that's a really good place to start you can obviously um have a look on a ton of resources online we've mentioned the pension lifetime savings association but to be frank the place you need to start is with yourself which is what do i do i truly understand what a good life looks like do i truly understand my own position and this this isn't straightforward you know think of this as a challenge is you didn't maybe go to university you didn't kind of set your career in a way that it was just a single one and done activity retirement planning isn't a one-off event.

1:09:44It's something that's going to have to be regularly adjusted and adapted, and that's okay. I just want to say thank you to George for giving up his time so generously. And if you want to have a chat to him one-on-one, get some advice, we'll leave all of his details down below in the description. Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results, so your money is at risk with investing and other fees may apply. As with everything financial, please do your own research.

1:10:15We really encourage that because no one cares more about your money than you. I'm Damo. Banti. This was an episode of Making Money from Our Company Most. It was filmed and edited by the team at Flow Spire, Jack and Ben. It was produced by Ruth Edwards and brought together by Will Stallerman. What about Ruth and Toothless a Dog? Yeah, shout out them too.