Knowing your number – how much do you need to be financially secure?

“hello and welcome to financial education

information my name is warren shoe and

today

knowing your number

[Music]

this episode has been sponsored by idelo

the price comparison website

okay so how much is enough

how much is enough for you how much do

you need

to be financially independent to be

fairly secure

or should we use the word retire i kind

of moved away from the actual language

the the language of retirement because

implies old age and implies

doing something which isn’t sort of

exciting

but um really what we’re talking about

is the period where you no longer

have to work for money you have the

choice to work for money i think that’s

a real important distinction because so

many people

particularly my clients continue to work

because it gives them more than money

and i think we’ve spoken about this

quite a lot in the podcast over the time

but um none of us are getting any

younger and precious time

is slipping away for all of us and we

have a period of um

retirement that could last say 40 years

so if you retired

if you became a financial independent at

60 you then have a period until age 100.

and we have clients who are on target to

have a retirement of potentially 50

years

so they’ll retire at 50. and that’s

because they’ve made a conscious

decision to do that

they’ve said okay this is my goals these

are what this is what’s important to me

you know whatever your day is how much

is enough what’s your number

um we all have this wealth window we

refer to as a wealth window so we have

this period of time

um that you have to save up and invest

enough money for your uh independence

your retirement

and as time goes on this wealth window

is getting smaller and smaller

so let’s say for example we have 10

years to go our wealth window would be

120

paychecks okay so i refer to it as

paydays or paychecks because it’s more

real brings it more into sort of urgency

so 10 years seems a long time but when

we say 120

paydays or 120 contributions into your

pension

you know they’re slightly different it

brings it to it more reality and that’s

what’s really important i think

that we have this sort of understanding

that you know time is slipping away we

have to make a decision

to move this forward you have to save

today

to secure your tomorrow you know if you

want your future to be brighter than

your past

you have to do something today to make

it so it just won’t happen by accident

and whether you’re saving 10 pounds a

month or whether you’re saving 10

000 pounds a month you know it’s

relative to you as an individual

and your outcome the output will be

commensurate to the input

so if you can only afford 10 pounds a

month that means you’re living on a

means that’s fairly modest right now

and therefore you won’t expect a lavish

lifestyle in retirement but if you can

afford 10 000 pounds a month now

it’s because you can afford that and

you’ve got that kind of lifestyle and

therefore

you would expect that kind of retirement

income um at retirement that income

every time as well

we refer to in the money plan is about

the first working hour working day so

pay yourself first so

12 and a half percent of your income

your take-home pay is a generalization

we suggest that you keep that retain it

for yourself as a minimum

um i’ve then kind of gone on and

elaborated on i really trying to drag

you up to sort of 20

of your income because i think that’s

more realistic level

but it’s making sure that you transfer

today’s money

to your future and make sure you build

up enough money to last you that

potentially

40 years you want to make sure you’ve

got enough money in the pot when you

pass away

so that you’re not worried about it in

later life and we have this wealth

window this period of time

while you’re earning money to do

something about it

and time and your ability to save

regularly or to your greatest assets and

securing your independence

you’re having time on your side and

putting money aside so

when i talk in schools or when i have

sometimes my clients refer their

children to me to talk

i say to one thing you’ve got that your

parents don’t have and

all your peers your sorry your um adult

teachers and stuff don’t have

is time and when you’re investing time

is your best friend

the sooner you can start investing the

better um

but most people don’t get excited about

investing most people don’t get excited

about investing

um long term anyway they want to see

quick results they

they want to put money aside and they

want to see the result on it straight

away

and it doesn’t work like that with

investing you know investing is an

exponential exponential growth machine

so if you plant a tree if you plant some

seeds for an oak tree

you’ll put them in the ground you’ll

water them you’ll nurture them you look

after them they’ll start germinating

they’ll start growing

but you don’t have a solid oak tree

after a few months or even a few years

it takes decades and investing is the

same thing

you start putting your money away each

month it’ll start growing you’ve got to

nurture it you’re going to make sure

it’s the same asset allocation you want

it to be

you’ve got to keep an eye on it you’ve

got to keep making sure the tax benefits

are being

looked after you’ve got to keep topping

it up keep adding to it keep adding to

but you’re not going to see a great deal

of growth over a period of a couple of

years

and that’s because it takes time to

really see the growth you’re getting a

10 return and you put 100 pounds away

you’re getting 10 pounds growth on that

but it’s the year after

you get 10 return on the 110 pound to

get 11 pounds growth

and then year on year this is what

happens and this is called compound

growth

it’s the 800 world i think i did a whole

podcast show

on it previously so search in the back

episodes for that so few people achieve

financial independence because

they don’t have the patience often it’s

not the only reason i appreciate

but often they have the patience to

allow the money to work for them

and allow money to work for me the

reason people say the rich get richer

is because they have more money to

compound

over time but that doesn’t mean that you

can’t start

you can start and you must start now and

there’s

never a right time i promise you whether

you’re earning twice as much money as

you are today

you will have other demands on your

income

i’ve seen it i’ve personally experienced

it and i’ve seen it with clients over

the last 26 years this year

as being a financial plan it doesn’t

matter how much you earn

most people live to their means

and they never find enough money to

invest it’s a

mental decision process you have to

decide

that you will take 10

12 20 of your income and transfer it

for your future self and money planners

understand this they understand

in the book i talk about regular savings

quite a lot and the

the need to put money away every single

month

regularly and then increase it

and then increase it so i increase mine

every january and

um we’re human my wife nikki and i are

in a relationship we’re we’re human

beings we’re not perfect on each other

i have a strategy that i must follow and

every january i want to increase it and

she’s like we can’t we can’t afford it

we have all these other expenses this

year

i said we’ll find a way we’ll find a way

we’ve found a way to everything else

we’ll find a way we have to do it

knowing how much you need

for financial independence for your

retirement is a tricky one in the book i

share the rule of 300

and the rule of 300 is a very simplistic

finger in the air sort of figure to say

that if you want a thousand pounds a

month

at retirement you need a pot of about

300 times that or 300

000 pounds to do it so you know you can

kind of work out the math it’s quite

simple so a thousand dollars a month the

retirement

three hundred thousand pounds if you

want two hundred thousand pounds by the

retirement you need about six hundred

thousand pounds so

300 times that and it’s a very good rule

of thumb to guide you

um but it doesn’t it’s not perfect

because what it doesn’t do is it doesn’t

take to account that in the

earlier years of your retirement the

earlier years you’re more likely to have

heavier spend

you’re likely to spend more money and

erode your capital more

and then there’ll be a dip period so

when you’re older

um in your 80s typically you’re like

less likely to long-haul travel

so you’re less likely to have high

expenditure but there is good news um

there is now a new website

it’s called truth about money dot code

so t-r-u-t-h-a-b-o-u-t

m-o-n-e-y dot code uk i’ll put in the

show notes

so truth about money it’s an absolute

free site and it’s modeled on a bit of

software that we actually use

in lexington wealth our financial

planning practice and i have been a

supporter of now

for 20 plus years i think

i kind of lose track my son’s 16 this

year and it’s way before then so at

least 20 years i think

need to say it’s a fantastic bit of

software it’s amazing

and the truth about money is kind of a

slimmed down version a bit easier for

you to use it’s online and it’s

completely free and you can key in your

details

and it will create a cash flow for you

and it’s going to show one or two things

based on the assumptions that you’ve

entered either you’ve got too much money

which means fantastic you can maybe

retire finish work early

or help other people or do other things

okay you know maybe you can take that

extra holiday with your children you can

take them to disneyland have those

experiences

if it shows you’ve got enough money or

it’s gonna show you’re gonna run out of

money

and wouldn’t it be nice to know that

you’re gonna run out of money now while

you’re still within your wealth window

and you still got a period of time to

earn money than being

68 thinking i wish i put more money away

i wish i did

um so it’s great it’s it was subscribed

to me once one of my clients said

you don’t want it’s like going up in a

helicopter going out into the future and

seeing what my life looks like

financially

and then coming back down and coming

back today and saying right okay this is

what i’m going to do about it

so yeah go check it out it’s a good it’s

a good site it’s free and it’s called

truth about money dot co dot uk

okay so whether you’ve got 360

paydays or 36 paydays to your retirement

having a plan and deciding

that you need to grow this amount of

money

is essential and i think previous

episodes we’ve kind of touched on

how to grow the money and what to do and

there’s some there’s a lot more um

articles coming out on warranty.com now

about

putting a portfolio together and

financial planning and how it will work

you know go across to the site make sure

you sign up on that and um

please message me with any questions you

got because i think

for me going through the hierarchy of

the program

it’s essential you know the five steps

what’s your outcome so

step one we’ve got to know what we’re

doing and why we’re doing it what we

want to achieve

so if i go back to the guy you’re saying

to you wants to retire 50

that was his outcome his outcome was to

put his kids through school save enough

money so they go through school

pay his mortgage off completely debt

free he knew his number

we calculated it that was his target

that’s what he was working towards

so there was his things we have some

personal we set our goals in in order of

peak

so um personal economic adventure and

contribution we’ve got personal goals

um so what he wants to do is fitness

economics so what financials

he wants to do um adventure so it’s

temporary holidays that kind of thing

so what’s he going to do where’s he

going to go and then contribution so

how’s he going to give back because

for me it’s all about paying it forward

i think we live in a society where we’re

incredibly incredibly grateful

um for having a roof over our head

having

food on our table we don’t have to go

and catch uh have a medical system that

looks after us and

and generally speaking we should be

incredibly grateful it’s a safe

country um certainly in the main where

we live so

giving back to those people who are less

fortunate of us um

definitely is an importance for me i

think it’s you know we’re all connected

um you know it’s important to keep an

eye out for other people so that’s how

we set the goals peak goals um so know

what your outcome is then we get people

to be financially well organized talking

about a bank account system and um

i’m reading a book at the moment by an

australian financial planner and it is

incredible the similarities between his

process and mine

i might do a show on that one day um

just highlight that

um to get yourself actually organized

you know where your money is and you

control of it so you

free up this at least 12 and a half

preferably 20 of your income

to put away for your future and then you

go down to do your foundations make sure

your

insurances are in place and you’ve got

your wills and your power of attorneys

all sorted

and then you get your debt paid

obviously you’re unsecured debt free and

then we go

attack your investing five things this

week

i’ve taken it around retirement um

forget the word retirement i don’t like

the word retirement financial

independence sounds a little bit forgive

american i’m actually half american i

have no uh offense there whatsoever

because incredibly upbeat people in the

main

but he’s trying to find a balance

between two but you know

financial independence is probably a

nicer way of saying it rather in

retirement

um so five things about retirement or

financial independence um your state

pension agents like to be 66

that’s rising to 67. there’s talk or

legislation going through they want to

take it to 68 it’s slightly dry 68

so between 66 and 68 whatever your state

retirement is you can go online and find

out

but that doesn’t need to be your age of

financial independence or your

retirement age okay

that’s just when the state pay you you

can retire whenever you can afford to so

make sure you know what your number is

um workplace pensions are by far the

easiest and best place for you to invest

okay they’re set up generally speaking

they’re low charged

all the administration take take care

for you if you’re an employee

you most likely can get your employer to

deduct the contribution out of your

salary before it even gets into your pay

back it

therefore it’s a lot easier for you

because you just look at the net amount

of money you receive

if you are self-employed um and you

don’t have a pension

you really need to get yourself one um

go across to lexo dot co

uk you can set yourself a pension up

there or go to anyone else you want i

don’t really you know i don’t remind

lexi’s my site but i don’t mind where

you go but

get yourself a pension it’s so important

you start saving for retirement and

don’t put it off

and starting something is much better

than not starting it so start it with a

modest amount if you can’t afford a lot

of money

and start putting something away and

then change it just agree to keep

increasing it a girl born in 1951

was expected to live to 82 a boy

77 okay so a girl was expected to live

to 82

and a boy 77 now in 2018 this has

increased to 92

for a girl and 90 for a boy so

long these are average ages okay so

longevity is increasing

these are average ages remember that’s

the average

you don’t need to be that much better to

be more than average okay just a little

bit better

so if you look after your health if you

listen to podcasts and things

the probability is you’re going to be a

little bit better than average

because you’re mentally stimulated

you’re doing stuff you’re in tune with

your body

so you know you’re then thinking okay

well maybe

95 100 isn’t unreasonable my dad’s 95

got his vaccine this week yay um and

doing great

you know my mom’s 80. she’s got vaccines

doing great so

you know maybe there is a opportunity to

live until you’re a hundred

wouldn’t it be nice to make sure you’ve

got enough money to do that in comfort

doesn’t say in style but i think about

ages want comfort

um if you’re thinking about downsizing

your home so before think about

downsizing your home for part of your

retirement

really think about doing this earlier

rather than later because what you don’t

want to do is downsize and move to an

area

too old so you’re not able to make

friends okay so do it while you’re still

young fit and active

um so you can make friends have a good

time

and number five if your employer hasn’t

already

automatically enrolled you in your

workplace pension because you work less

hours

or you um earn less or you were young

it’s not less

actually sorry i should have said that

is if you earn less or if you um

if you’re younger than 22 you can still

join

okay they don’t have to contribute but

they do have to let you join so you just

go to hr departments i’d like to join

i’d like to start putting this money

away

and the reason i would do that as

opposed to setting your own scheme up

is they’ve done all the research they’ve

done all the research it’s all set up

for you

you know all the other members run it

it’s likely to be pretty good

um so it’s done okay so that’s enough on

your number know your number get to know

your number

go across to the truth about money dot

co dk site and check it out okay so

less uh more news this week public

sector net

public sector net borrowing so this is

the amount of money the government have

to borrow just to balance the book so

it’s almost like your overdraft

to make sure every single month that

they got enough money to pay

um in 20 december 2020 was estimated to

be 34.1

billion okay so they had to borrow 34

billion to balance the books this is all

because the corona crisis um government

support package and stuff

that’s 2.1 billion above the

expectations it’s the highest december

record overall now the government debt

is sitting around about 2.1317

billion so that’s 2 trillion 131

million that’s just a billion 700

million it’s crazy isn’t it 2.1 trillion

that’s 18 higher than a year ago and

it’s about

99.4 of gdp which is the government

sorry the country’s income

so that’s the highest rate since 1961

62.

the only thing i would say to you is

interest rates are much lower now so

it’s a lot

more manageable it’s not ideal but it is

more manageable

second bit of news out is halifax

published it’s researched in the first

time buy a home

market first time buyers were down about

13 year on year broadly in line with the

reduction in bar purchases over the

residential market um

halifax reckon first time buyers account

for around 50

of property purchases and that’s down

about one since 2019

so they’re still out there they’re still

buying it’s doing well

a couple of questions in from listeners

and readers and things this week so i

have a niggle in the back of my head

give it a scratch

that if i leave a certain percentage of

my estate to a charity it reduces the

tax liability on my estate

is this correct if so what is a

percentage please

okay so if you leave any money to a

registered charity or political party

it’s completely exempt from inheritance

there’s no seven year rule so on your

death you just leave it

it just reduces your estate um if you

leave

10 or more of your taxable estate that’s

the amount after the

um 325 or 650 tax free allowance if

you’re a married couple

then your tax rate on your death goes

from 40 of your estate

down to 36 okay so 10 or more

reduces the tax rate from 40 to 36 and

that’s your question

i noticed that the pension death

benefits uh

form that i have i can leave some all of

my pension

uh on death to a charity is this wise

um okay so your pension is outside of

your state and you can leave it to

individuals so normally it’s a spouse

and children

or you can leave it to a charity or any

anything actually any company or

um university anything like that um

it’s not ideal leaving it to a charity

now don’t let me explain why because

that’s outside of your estate

that’s not going to be taxed but your

rest of your estate your house your isis

your bank account your car

anything else what’s in your state is

going to be liable to inherit tax over

the 325 000 or 650 if you inherit your

partners

and you’ve also got your residential

already banned um so

if you think you’ve got an inheritance

liability you’re better off leaving

money from your estate

to a charity because that would reduce

the estate taxes and then leaving the

money in the pension

to someone um else or somebody else or

something else because they won’t pay

tax on that money

but um if you’re going to leave it all

to a charity anyway it doesn’t make any

difference

leave it all to a charity but if you are

going to leave money to an individual

often the pension’s a better place

because that will be tax-free

okay last section of the show is the

smarter

spender so the smart suspender is um

Knowing your number – how much do you need to be financially secure?

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