Retirement planning has become increasingly sophisticated. Financial planners can model different retirement dates, expenditure assumptions, investment returns, inflation, taxation, longevity and the consequences of drawing capital at different rates. We can illustrate what might happen if markets fall at an inconvenient time, if expenditure is higher than expected, if substantial gifts are made or if the client lives considerably longer than anticipated. All of this is useful, and much of it represents a genuine improvement in the way retirement advice is delivered.
There is, however, a more basic problem that sophisticated modelling cannot resolve. Before we calculate whether a particular retirement is financially sustainable, we need to understand what sort of later life the client is actually trying to sustain.
This is the thinking behind Map 5, Later Life, within my six-map FPPM discovery structure. The process deliberately begins some distance away from pensions, withdrawal rates and cash-flow forecasts. The starting point is the client's conception of later life itself: what changes when full-time work ends, what remains important, how ordinary life might look, what the client hopes to do with additional time and how those expectations might change as they become older. Only once that picture has developed do we begin translating it into expenditure assumptions and, subsequently, financial modelling. In Map 5, I describe the sequence as “Story first. Daily life second. Spending third. Modelling later.”
The distinction matters because retirement is not simply a financial event. Work provides an income, but for many people it also provides structure, purpose, social interaction, intellectual stimulation and a sense of being useful. The significance of those things differs enormously between individuals. Some clients have spent years looking forward to the point at which they can stop working. Others genuinely enjoy their work and have little interest in abandoning it simply because they have reached a conventional retirement age.
For those clients, the normal question of when do you want to retire? may obscure rather than reveal what they actually want. Their preferred future might involve working fewer days, consulting, starting another business, volunteering, studying, taking lengthy periods away from work or simply retaining professional involvement on different terms. Later-life planning should be capable of accommodating all of those possibilities rather than treating retirement as an inevitable destination towards which every client is progressing.
This changes the nature of the discovery conversation. Rather than beginning with when the client intends to retire and how much income they will require, it becomes more useful to understand what work currently contributes to their life, which parts they would happily relinquish and which they might miss. The Map 5 process explicitly explores the transition into later life and what might replace the aspects of work that currently provide routine, purpose, activity, social contact or achievement.
There is also a question of how quickly financial reality should be allowed into that conversation. Clearly, aspirations cannot remain detached from resources indefinitely. Financial planning ultimately has to reconcile what somebody would like with what their capital and income can reasonably support. But I think there is a danger in performing that reconciliation too early.
During our development of the Maps, I kept returning to a fairly simple principle: get the aspirations onto the table first and compromise later. This is not an argument for encouraging unrealistic expectations. It is an argument about sequence. If a planner introduces affordability while the client is still trying to articulate what they would actually like, the conversation can become constrained before the aspiration has been properly understood.
Consider something as apparently straightforward as travel. A client who tells us that they want to travel extensively in retirement has not yet given us enough information to make a useful financial assumption. Our earlier Q&A deliberately pushed beyond the generic description and considered what travelling actually meant to that particular client, including the rather more memorable distinction between a “six-star resort couple” and “silver Eurorailers”. The point was not the terminology. It was that two clients can express apparently identical aspirations while imagining very different lives.
The same applies to hobbies, family, entertaining, time abroad, helping children or grandchildren and the ambitions clients have postponed during their working lives. One particularly useful idea that emerged from our Q&A was to explore abandoned ambitions. A person may have spent decades putting things aside because children, work, mortgages or other responsibilities took priority. Later life can create the time and financial freedom to reconsider some of them. If the planning conversation begins from today's expenditure and simply asks how much income will be needed to maintain it, those possibilities may never be discussed.
This is why I am increasingly wary of retirement planning based upon a single expenditure figure. Later life may last for decades, and there is little reason to assume that a client's desired lifestyle will remain constant throughout it. Map 5 therefore uses Transition, Active and Less Active as conversational prompts rather than predetermined age bands. The client determines what those phases mean rather than the planner imposing arbitrary ages upon them.
That provides a more credible basis for discussing expenditure. The early years after leaving full-time work may involve travel, projects, hobbies and family activities that were difficult to accommodate while working. The nature of later life may subsequently change, and the client's priorities may change with it. The purpose of identifying phases is not to pretend that we can predict precisely how somebody will live at 72 or 82. It is to recognise that treating perhaps thirty years of later life as a single homogeneous period is itself a substantial assumption.
There is an important wider point here. The Maps are not intended to become permanent descriptions of the client. Our earlier discussion recognised that they will evolve as the client and their circumstances evolve. A later-life plan constructed today is therefore not a prediction of how the client must live in twenty years' time. It is our best current understanding of the future they would like to create. Regular planning then provides the opportunity to revisit that understanding as experience, health, family circumstances and personal priorities develop.
Eventually, of course, aspirations have to encounter money. Map 5 is intended to produce assumptions that can subsequently be tested: the lifestyle associated with different phases, annual spending, significant one-off costs, an appropriate allowance for later-life support or care, and ultimately the client's estate and inheritance-tax position. At that stage financial modelling becomes exceptionally useful, because we are no longer asking it to define the client's later life. We are asking it to test the financial implications of a life that has already been considered in some depth.
That can lead to uncomfortable conclusions, and it should. A client may not be able to have everything they initially describe. Earlier retirement, greater expenditure, substantial family gifts, greater financial security and a large eventual estate all place competing demands upon finite resources. Good planning does not remove those tensions. It makes them visible so that genuine choices can be made between them.
This also changes the significance of an unfavourable cash-flow result. If the client's preferred life does not appear sustainable, that is not necessarily the end of the planning exercise. It provides the basis for a more useful conversation about priorities. Perhaps the retirement date moves. Perhaps work continues in a different form. Perhaps expenditure changes, capital is used more deliberately or the intended legacy becomes smaller. The compromise is much more meaningful when both planner and client understand what is being sacrificed and why.
For that reason, I prefer later-life planning to the narrower conception of retirement planning. Retirement may be an important transition, but it is not necessarily the objective. The objective is to help the client use their resources to support a worthwhile life over a period in which work, family, health, purpose, expenditure and eventually legacy may all change.
That requires rigorous financial analysis, but the analysis needs something worthwhile to analyse. The planner first has to understand the life, then make that life sufficiently tangible to attach sensible assumptions to it, and only then test those assumptions against financial reality.
Otherwise, we risk producing an impressively precise answer to a question the client has never properly been asked.