Successful investors start with a goal. What you need to keep in mind is that the goal may be multi-faceted.

Retirement is an example of an area where investors may overlook what is needed. On paper, you look and think “I need X amount to live on for thirty years in retirement.”

What you may also consider is leaving some money behind. This can be a natural thing to overlook,  as unpleasant as it is to think about, it can be easier for those we leave behind if you have fully thought through your financial legacy.

That’s why in addition to the retirement sum you think you’ll need to live on, you should also consider the sum you could leave behind.

If you want to leave money to your spouse, children, grandchildren, relatives, friends or charities, you would need to plan for it. You may have legacy inheritances in mind, perhaps a sum to pay for your grandchildren’s education, your spouse’s healthcare or a bequest to a favourite charity.

That could add up to an additional sum on top of your retirement pot. Something else to consider is how much longer we are all living and how healthcare could improve to an even greater extent in the future. Who knows if a thirty-year pension pot really will cover your retirement?

You also need to consider the effect of inflation. Your £1 today won’t have the same buying power as £1 in twenty to thirty years, so it’s important to plan for this. The Government targets a 2% annual inflation rate, so this could be a good place to start.

That’s why it is worth overestimating your goal. Many people forget the needs of their dependents, the potential extension of life and cost of healthcare, the cost of a funeral and the legacy of inheritance that can provide for your family after you’re gone.

Set a goal, commit to regular disciplined investments, and let compound growth build the complete sum you need in later life for all your needs. Building a pot to cover these needs can take decades, but don’t fall into the trap of thinking it is too far away to worry about. The fact is that the earlier you start investing, the longer your money can benefit from compound growth and ultimately snowball into a far greater amount.

When you’ve worked out the inheritance you want to leave, you also need to think about taxes.

Inheritance Tax is a complicated area, so many people choose to seek professional financial advice regarding their circumstances.

To recap

  1. Don’t be complacent when thinking about much you’ll need in retirement, it is better to overestimate than underestimate.
  2. Retirement is about much more than funding your lifestyle, you should also consider costs such as care, funeral planning, and inheritance
  3. Consider the tax implications for inheritance and plan accordingly.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

< Back to Blog