How To Plug A Retirement Shortfall Without Savings

Financial intermediaries are in the?business of helping you manage the money you have already created. They?are not in the business of helping you make money in the first place.?

According to the Office for National Statistics Wealth and Asset Survey of January 2022, regulated retail investments such as non-workplace pensions and financial assets, such as stocks and shares ISAs, general investment accounts, and life bonds, make up five percent of the wealth of the average Brit.

Assets that are not regulated retail investments make up the remaining 95%. This figure includes occupational defined benefit pension, defined contribution pension, workplace pensions, property, physical assets, cash savings, and business assets.

The medium average defined contribution and private pension pot (workplace and non-workplace) is ￡3,300 per household. 47% of pre-retired Brits don’t contribute to pensions. According to Hargreaves Lansdown, 56% of these pensions are fully cashed in at retirement.

Those not members of occupational defined benefit pension schemes are mainly private-sector workers.

The average pot size to achieve a comfortable level of retirement income from age 67 is generally accepted as ￡250,000.

One in seven Brits has little or no financial assets.

One in three Brits say they have no pension.

It’s fair to say that most British private-sector workers face an uncomfortable retirement.

When you have a retirement shortfall, a financial intermediary may quote a non-workplace pension to plug the gap. Their compliance department will accept the advice as suitable based simply on a needs analysis.

The adviser gives little to no consideration to the client’s story or future job security. Alternative, non-sale-related solutions are seldom considered.

Financial intermediaries often have an investable asset threshold of ￡100,000 or more for advice to be worthwhile. Only five percent of Brits meet this criterion. Intermediaries are unlikely even to have a conversation with the average Brit, as they can’t figure out how they will get paid.

They would likely quote some ridiculous premium to plug the gap if they did. The prospect would walk away totally disillusioned. And underserved enter a state of denial, fear, or a feeling of hopelessness.

The quote would not put off the young worker. But all advisers know that every five years, the prospect delays plugging the gap via the savings route, the premium goes up about 50%. This hike is the cost of delay.

For example, the projection of a 30-year-old paying ￡100 per month into a pension might see a fund of ￡140,000. If delayed to 35, the pot is just ￡98,600, leaving a shortfall of ￡41,400. The value of the fund may fall or rise and is not guaranteed. You may get back less than you invest. Any investment you make into a pension will be tied up until you take the benefits.

Here is what happens when we remove transaction bias.

The good adviser, a non-intermediating financial planner, or an end-user financial planning app, such as HapNav, pulls up a list of alternative solutions.

Lower expected living standards in retirement, defer retirement, add income before or after the retirement of prospect or spouse, or, most importantly, make assets, such as business assets, or property business assets, or a combination of these things.

We train the adviser to advise on the remaining 95% of assets of the average Brit.

We train the adviser on making the asset in the first place.

We train the adviser to plan the client, before the money.

Surprisingly, investments are rarely money-making vehicles?despite the avalanche of media propaganda leading you to believe?otherwise. They are typically a parking place for preserving and?growing the purchasing power of money made elsewhere.

Bringing skill to a business, or property business, is the only way to make money mid- to late-career.

A small proportion of the population can save their way to wealth by?applying frugality and deferring earned income (money earned?elsewhere) to investments and property.?

However, saving your way to wealth is less common because it?ignores the value you can add with skill and because it requires?discipline, persistence, and starting early enough in life to?allow compound growth to work its magic. Yes, it is a workable?strategy, but few people fit this profile.

The additional considerations a good adviser adds are as follows:

Align your work with your values.

Set up a side hustle or main hustle.

Set up a portfolio of hustles. Diversity increases safety and certainty in the outcome.

Apply skill, what you are good at, and what you love.

Do what the world needs and will pay you for.

Don’t do the job; own the job.

Find work that doesn’t feel like work from which you never want to retire.

Stop exchanging your time for money; exchange your know-how for money.

Add these things to your plan, and the premium quoted for saving into stocks and shares ISA to plug the savings gap will be affordable.

I deliberately didn’t say non-workplace pensions, GIA, or investment bonds as these are unsuitable saving vehicles for the average Brit. Read the 100-year life – Living and working in an Age of longevity, by Lynda Gratton & Andrew J. Scott if you want to know why. Or read my other Blogs.

Model and track your finances using an end-user financial planning app with an open banking platform inside (currently, that’s HapNav).

In most markets, the regulator does not require the excellent advisers to be regulated investment advisers; as you can see, they don’t advise on securities. The ISA is readily available on many low-cost, well-diversified, auto-rebalancing D2C platforms. The financial asset is a commodity for the average Brit. Financial planning is not a regulated activity unless you do it with a view to intermediation. A total financial life planner does not need to be regulated, as no products are advised on or sold.

For books, packs, apps, or mentorship. Please find further details at:

www.lifewithoutpensions.com | www.hapnav.com | www.academyoflifeplanning.com

The first two are for end-users. The latter is a global network of good advisers trained and accredited on this approach.