Bloomberg Audio Studios, podcasts, radio news. Welcome to Meron Talks Your Money, the personal finance edition of Merin Talks Money and these bonus podcasts we talk about the best strategies for making the most of your money. I'm Mertin something that web and with me, senior reporter of Money Distilled author John Staback. Hi, John him. Okay, we have got great listeners, and so this week's episode was inspired by an email from one of those listeners. So fan of
the show, Craig, Thank you. Craig wrote in to ask about his retirement. He's writing about his own experiences. He's worked hard, he's saved, he's planned, he's budgeted, and he has, as he puts it, developed frugal skills. Your wartime grandmother would have been proud of. Now and I'm still quoting Craig here. Now you're suddenly sixty something. You have that pesky mortgage paid off and some money put aside, but you can't bring yourself to spend it, can't bring yourself
to splash out on yourself. And the worst is that you can't find anything you really need anymore, even want that badly. So all that pain, enjoy it accumulating and saving through your younger life seems like a waste. Maybe you should have just enjoyed your life more then. Oh god, this is terrible, Craig. I'm feeling for you here. Your kids are grown and settled and working. They don't need a financial legacy, tell you what, Craig, But they think they do. Enjoy your money, they say, and live your
life to the full. But the lifelong habits possessed, and I can't. Can you help with this dilemma? Well, so the first thing to say on this is this brace a mixed reaction from the team. So you and I, you know, we're getting old. Now we get to immediately understand what Craig is talking about. Some of our younger production stuff. You know, they're a bit like this, even a real problem not knowing how to spend your money.
But you know, I have been thinking about that's quite a lot since we got this email, and you know, I really do get it. And we have said on this podcast a lot that when you are thinking about your spending and your saving, you're trying to find a balance between today you and tomorrow you. And you've got to find the right balance. Because of course tomorrow you might not even exist. Oh, we have no idea. What's going to happen between today you and tomorrow you. You've
got to find the right balance. You've got to live now as well as saving to live later. But there's more to it than that. There's this idea which again we've talked about that pretty much everyone, and even if they won't admit it, they have in their head a target level of accumulation. I'll be fine when I've got a million quid, I'll be fine when I've got one and a half. I'll be fine when I've got to whatever it is. Everyone has this in their head and
everyone who is adding out. My house is worth this, my pentan is worth this, my savings are worth this, et cetera, et cetera. You get there, you get your target, and then you have to run down your target. You're moving away from something that you spent forty years heading towards. That is that's the kind of psychological hell, and at the same time you're confronting your own mortality. I've got the target, I got to the top. Now I'm on
the way down. I'm on the way out. And when I think about my money and how much there is I have to think about how many years I think I'm going to live. I mean, I'm done now. I'm never retiring. I'm never going to be Craig. I'm just going to keep accumulating forever. I can't I can't even begin to face the psychological issues that Craig has brought up here. Have you been thinking about it like this or have you just been, you know, counting your money?
Those that exactly the things have been thinking about. I mean, this is fundamentally a problem with the human condition. It's like you may get hit by a bus tomorrow, but you might not, and that's the uncertainty that you have to live with and plan for. And you don't have the number, well, you don't have the key number in the equation that you need for absolute certainty, which is
at what age am I going to die? And the problem is, yeah, you do get to the point where you know, you'd like to say you've got all your money, and at this point that it's been that goal for such a long time, and if you are someone who's heavily goal orientated, then it's somedingly like, well what do I do next? And one other issue I think, and I think this afflicts men, or at least full time
career driven people quite badly. Your goal is okay, let's retire, and then your next big goal becomes, well, actually, my next big goal is is death. And if you're not careful, then you sort of spend your retirement with that sort of looming over you. Is almost like it's like, well, what am I doing now? And I think that I do think that. I mean part of what Craig is talking about here and we probably wouldn't discuss this into but is what purpose do you replace?
You know?
What is your new purpose? How do you keep building?
Yeah? But is this why so many people are obsessed with inheritance tax? Your new goal becomes not paying inheritance tax. You know, first you're accumulating and now you've got to find something else, something else financial, And it's all about that. I don't know anyway. Yeah, everyone needs a target, everyone needs an obsession. You know, target driven people are the most Well, this is not a self help podcast. We
keep saying, we get, we get. We have a guest coming up, and now he's going to think he's on a self help podcast. Georgia, not on a self help podcast. Okay, financial podcast. So moving on the key point here being there are no pockets in a shroud. So this that's a wonderful phrase, doesn't It keeps coming up on this podcast. So all this raises some really interesting questions. What is
the best way to scenario plan for your retirement? How can you feel well informed about what you're realistic spending limits are. How can you give yourself a spending target to work for as opposed to a saving target to work towards, particularly if you have spent the last forty years aggressively saving, which by the way, is not exactly what we would advise on this non self help podcast. So to help us talk about that and address some of the issues that had been brought up by Greig,
Thank you again, Craig. We have invited on George who as a chartered financial planner and retirement planning a specialists firm is called Flying Colors Advice. Welcome George, and thank you. Sorry about that lengthy introduction, but do you know I was up all night worrying about or having a target anymore? As I age, I was.
Going to say, I absolutely love the introduction. It was great and you perfectly articulated what I've heard so many times from clients, maybe not said directly. You seem to have every detailed kind of work through, but it was an amazing intro. So I was nodding my head along to it.
Thinking that's great, thank you.
First, I just want to acknowledge that, you know, it's really difficult to get this right because this is a first world problem. But it's a problem nevertheless, and hit now on the head where it's as much psychological as it is financial. And we're creatures of habit and at the end of the day, the same habits that are going to make you financially successful are probably going to make it quite hard to spend if you are financially successful.
The vast majority of us, we part of our identity is we become accumulators, and that's all well and good, But then the problem is what happens when the figures are supposed to go down? How exactly do we plan for that? I think when I read kind of Craig's question, the thing that really struggle me, if I'm being honest, is don't we beat ourselves up so much on everything? Which is that if it's not crisis because you're not saving enough. It's crisis because maybe you've not spent the
right amount. And this, especially in retirement, this is so challenging. You know. William Sharp's a Nobel Prize winner in economics. He called turning your lifetime savings into sustainable income the nastiest, hardest problem in finance. And the reason he did is because, as Johnny said, we don't know how long we're going
to live. We don't know what inflation is going to be, we don't know what market returns are going to be, we don't know if we're going to need care, and we don't know what the sequence of returns are going to be. So all of this kind of adds together.
But for Craig, you know, I think the thing to put himself on the back with is he said, you know, kids settled, no mortgage retirement, where it seems like he's acknowledging he's got financial security, he has options, and probably the first step to resolution might just be taking step of stock of what he's achieved first, as opposed to looking at the missed opportunity. But there are things we can do to address the missed opportunity.
But as well, when you say the missed opportunity. What do you mean the fact that he has possibly oversaved and he hasn't. This man has not spent enough time in the Maldives in his head.
Yeah exactly, And I am kind of inferring slightly from the question, but I think there's the kind of the end. But he says, enjoy your money, live your life to the full. Lifelong habits persist and I can't, and he kind of the indication is sort of maybe wasted opportunity. I think the big thing I'll be saying to him as an individual, and then maybe we can kind of take some lessons from it, is you are at retirement.
You're at the ultimate point where you have freedom. And sometimes we look at wealth in a really kind of binary, singular way we think of money. But in my view, and certainly why I encourage my clients, wealth isn't just money. It's health, it's relationships, it's purpose, which is what you touched upon freedom, it's freedom. Yeah exactly, and he's ticked
that box. But especially if you ask someone listening who is approaching retirement, you need to spend as much time thinking about what you're retiring too, as much as you're spending time thinking about what you're retiring from. You know what happens that first day on perhaps a rainy Tuesday, and you're probably listening to this in a very rainy January where other people are at work, or maybe you're down the golf course and you know, saying the same
jokes for the fourth time. How are you going to fill your calendar so that you can continue to have some purpose?
I suppose you have saying we should say about Craig before we move on, that he does seem to have a very interesting set up here where his children are grown and settled and working and don't need a financial legacy. And as I said, I'm sure that they'd appreciate a financial legacy, but he's in an interesting position there. I think there'd be very few people these days in their sixties who could safely say that they felt their children
were fully financially settled. And spoken to a reasonable number of people recently of this sort of age group who look around themselves and they see, you know, the value of their house, which might have been the thing that they intended to leave to their children as their financial legacy, that value is falling, particularly if they're and maybe in the southeastern and central London, so their mental mind map of how much they might have to leave to their
children is falling. And possibly they're also seeing their own children having trouble with cost of living crisis, getting on the housing ladder, themselves, financing their children's education, all these things. So there is a group of people Craigue is not among them, who are suddenly finding in their sixties that they have financial pressures they didn't expect. Yeah.
Absolutely, as far as kind of practical stuff to try and address this, and it's so difficult because we can never summarize the generation, We can never really generalize. But as far as what I do day in day out with my clients, the heart of it always has to
come back to a cash flow plan. So we talked about so if you think about on the way up you're budgeting, and especially perhaps in your thirties and early forties, the reality is you can just go on a mode where I just want to accumulate as much as I can. You know, the number needs to go up in the fastest possible and most tax efficient way. Yeah, but I would say when, especially when you start to get towards
retim start to approach it. That's really where a cash flow plan comes in, and professionals like myself, we use kind of quite sophisticated modeling software where you can go in and actually you can put into the system if I wanted to die with zero, how much do I need to spend based on these figures, and then I've got to spend the rest of the meeting. Go No, we're not going to spend that amount, by.
The way, because it's really racy. But I mean, that is the time get right, die broke?
Is it mere? Though? That's interesting though?
Is I don't know. I mean, it feels like a good target. Then there's no tax to pay. Everything's been either given away or spent, and you know, you accumulated perfectly and then you decumulated perfectly. So maybe we can offer that as a goal to people to get rid of their deccumulation anxiety. Make dying broke the goal.
Yeah, and actually let's dive into that because that actually there is some things to talk about, especially when we're talking about property and pensions. So I'll kind of dive into some kind of legislation. So from twenty twenty seven, certain new tax year pensions are going to be inside of the estate for inheritance tax, and this has fundamental for my clients who have a bit more money. This
has completely changed the cash flow plan entirely. So just to recap on the rules, Basically, this is not including defined benefit pensions because they generally die either with you or they die after your your spouse or civil partner
passes away. This is specifically around flexible pensions where you have a pot Now current rules tho these were actually very tax efficient legacy vehicles because effectively, post of twenty fifteen, you could leave them outside of the estate and it meant that, okay, if I don't spend my pension, it's an incredible legacy option. Because at the moment nil rate bands are three hundred and twenty five thousand pound per individual.
You also have what's called the main residence nil rate band, and this effectively means that a single person it's up to five hundred thousand. If you're married civil partner, it can be potentially up to a million. Now, pensions are going to get dragged into the estate from twenty twenty seven. And it's not just that there's a cliff edge around it. This is assuming you've got a flexible pot, so not
a defined benefit pension. And if you die after seventy five, not only will that be inside of your estate after you and your spouse die, assuming you leave it to your spouse, but also if you die after seventy five, it's taxable at the beneficiary's marginal rate. Now, let's say you are based in the South, and let's just say your house is worth over a million, which is a substantial amount of money. But let's just say that is the case. You've also got then your pension part and
you don't know how long you're gonna live. The problem is if your pension is inheritance tax eligible, that means
they will lose forty percent inheritance tax. And then, in like Craig's example, if the kids are settled, perhaps they're higher rates then post seventy five, if they then try and draw out the pension they've inherited, they've not only paid forty percent inheritance tax, but then they might pay an extra forty percent if they're higher rate and we're drawing, so the tax rate for them would actually be sixty four percent when you work it out, forty and then
forty percent of the residual. So what does that mean? Well, going back to Craig's position, we do need to kind of reframe it is that if you are affected by that, you might not be wanting to spend as much. But how do we feel about legacy, how do we feel about inheritance tax planning? And sometimes that can get them off of the fence a little bit towards action.
Yeah, so you need basically you need to spend all the money inside that pension rapper shearpish to avoid your airs having to spend having to pay sixty four percent taxation on it. So that's quite a quite a driver for Craig.
Yeah. I think the other thing I think was interesting about Craig's comment as well, as he says, what was it? I don't want to splash out on mess yourself? So nothing to splash out on yourself? The thing I would push back if he was a client, I would say, what do you mean by that splash out on yourself? You know what do you mean by that?
Is that?
Is there anything that you're not spending on? Is there anything you want to do kind of intentional? Because we do have this, you know, this mindset sometimes where no one wants to be seen as extravagant. But a pound when you are sixty or fifty five it has a different utility to a pound when you are eighty five ninety. I'm not saying all eighty five year olds don't spend anything. I'm saying, no one's promised tomorrow. And you know we can't be guaranteed to be going down the ski slopes
at eighty five. I think that's a fair thing to say.
I wants to climb killim and Jarrow. He needs to get moving.
Yes, exactly, exactly, And a good financial planner should be always encouraging someone to spend their money purposely for today. It's not about being wasteful, but it's about going right. We've got a cash flow plan. How are you making the best use of the money. And I'm quite proud to say that quite a lot of my meetings with clients I will be saying, look, we can spend a bit more. Is there anything you've not done? Is there
anything you would regret not doing? Because we all live our lives a bit on autopilot, don't we, and especially if we're used to accumulating, sometimes you need a bit of permission to go on the holiday or go business?
Oh, good business.
Now these are really tough questions, Lord, which I think is sort of getting to the other if you like the psychological point. But Krieg is time. But is there any advice that you give to people who are sort of like certainly they're saying, well, asley, I don't know what I want to do. And I think this is probably something that hits maybe in the like very early retirement rather than you know, once they've got used to it.
But that is just part of that big kind of shift and suddenly thinking I said, what is the point? What am I doing here? And then you've got the risk that you sit there and think, well, actually, that hobby that I spent ages saying I was going to spend you know, the rest of my life in the
golf course, I don't actually fancy that anymore. Is there anything you have a turn around to people and say, well, look, I don't know, like you know, take a holiday for a fortnight and just you know, like think about this problem. I mean, if you get any sort of suggestions for that early point after retirement and how you can sort of ease yourself gently into that. It's just because change is traumatic it's like, how do people take time out from that?
Yeah, this is a really good question, and the truth is the best time to think about this is before you retire, not on the day of retirement. There's going to be so much that will change at that point, you'll have that identity shift that like anything, if you're going to make a big change, the best thing to do is to ease yourself into it. And that doesn't necessarily mean continue working, although sometimes part time work can be a really good way to ease your way into it.
But you should be looking at your calendar and thinking, how where am I going to get the purpose that I had from work? Where I'm I going to get the engagement? If we go to the gym to keep ourselves physically fit, how am I going to remain mentally strong and resilient and make sure that I've got things
to fill my time. So absolutely answer your question, John, I am speaking with my clients and saying, okay, so what are you retiring to you know, tell me about your weekend, you know, tell me about what you're going to be doing to fill your time. Now, for those that are highly engaged, they will list tons of stuff around the house hobbies, you know, things are going to do, volunteering. Often it tends to come with maybe perhaps a bit of extra family support they've got grand kids on the
way or something along those lines. And that's always great to hear the people who I worry about, and I always push back and just say, look, I think you really need to think about this is the kind of the perhaps the one who's been the big as the executive, who has maybe not had time or the inclination to
think about it. Maybe, if I'm being honest, it's something they don't really want to think about because they've got a lot of their identity from what they're doing in work, and it's so individual, so it's difficult for me to take a sweeping statement. But I would often push back in those conversations and say, are you sure you've got enough to you know, to really enjoy your retirement, because the truth is there are some who regret retiring, and we don't want that as a planner. I don't want
to see that. I don't want to see you, you know, a couple of times a year looking more miserable every time I see you.
Isn't that what charity boards afore George, Yeah, exactly, exactly. Yeah, half the charities in the world exist to give retired people something to do.
Yeah, well, there is that, There is that, But I think it comes down to intentionality. If you think about retirement being you know, it's not a one off thing. There is no way that we would plan for something as big in our life without or we would go into something as big without a really well thought out plan. And sometimes I think we feel like retirement is just this thing that happens that you just disappear off into
the sunset. It's not. It's a phase of life. It's the third act, and we need to make sure that it's actually worth all the things that you've sacrificed for.
I can't tell you how anxious I am now feeling, George, I don't know, so terrified of the idea of retirement looming in a decade or something. To sit down and make plans. I've got to make some lists of so much stuff I've got to do in preparation for this. But let's go back to making an actual plan. How do we sit down and figure out how much we should be spending. I'm using the word should quite carefully here.
What does Craig do, Now, how does he sit down and find out what he actually should be spending?
Yeah, and it would be very self interested me saying, work with a financial planner. But this is generally absolutely called George. Yeah, this is we have a lot of value because it is what we do day in day out. But even if you don't, I think unless you are just that person who has just a define benefit scheme and it meets your needs and then it will get topped up from your state pension, the vast majority of the scheme, Yeah, the vast majority of us have all
these moving parts we've got to consider. And also your spending will change, your family needs will change. Maybe you want a gift part for a house deposit for the kids. There's so many moving parts. I think you're going to need to construct some sort of financial plan. Perhaps maybe in the show notes if you allow as we can put some links to some resources. A financial plan is better than none. And what your effects are going to need to do is you're going to need to look
at your different income sources. So we know that you'll have your state pension. You should check if you're entitled to a full state pension. So go on check state pension forecast, to check your national insurance record, and then we need to really get intentional about your pension planning. So have you got to find benefit schemes, when do they kick in? What's the impact if you take them earlier? And you can ask the schemes for things like that,
what are your underlying investments with the pensions? What are your pensions? And isis which are you going to draw
down bit by bit. One of the things I'm doing for my kind of clients with a little bit more money is actually we're being much more thoughtful in relation to doing things like when they come to retire, maybe even using their full basic rate band, because if they're using their full basic rate band, actually when you compare it to that potential sixty four percent tax example I gave for the legacy, you know it actually can be
worthwhile doing that. So it's about looking at your assets and the income streams they can or are potentially going to provide you in retirement. Some people will being draw down where you're drawing down the pot bit by bit. The areas you have to watch out for there is there is a specific risk in retirement called sequence risk.
If you're entirely a reliant on your pension pot. That is, it's not just the returns you get over retirement, it's the order of returns that can have a substantial difference. If you're that unfortunate person who retires in the nineteen seventies when we went through the stagflationary period or two thousand and nine, you're going to be in a difficult position because you are drawing down on your pot when
the markets are down. So you need to have a look at your expenditure, which is your your life, the cost of your lifestyle. Make sure you increase it with inflation. Don't forget about inflation. I've seen some DIY cashplow plans where people don't include inflation it all. You know, half your spending power over your retirement inflation, so make sure we factor that in charges and so forth. I know that sounds like a lot, It sounds overwhelming. There are
templates that can help you start, and you'll have time. Yeah, well do it before, do it before. This is the working activity, I would say, just because going back to Craig's point actually on that it's insightful to do it earlier anyway, because let's say Craig had done this ten years ago and he'd actually realized, do you know what, I think I've got enough? What happens if he had then decided, actually, I'm going to go part time or
I'm gonna maybe go on a few more holidays. Wouldn't that be a great result of someone listening to this podcast if they actually ended up living a bit more intentionally today as well. So I don't think there's a there's a point that you can be looking at a cash flow plan for yourself too early. That how much you need one depends on how complex your finances are. I would kind of say similar to it's important to have a budget if you don't have a good handle
of your finances. If you have more complex finances, it's good to have a cash flow plan because it's going to need that extra level of kind of scrutiny and check. But yeah, that's what professionals do, and you can certainly emulate it to a degree yourself, which will give you a lot of clarity.
Let me ask you both a question, John, I really want your input on this one. So Craig is having trouble spending, maybe a lot of people Craig's Egg are having trouble spending, but is there a moral imperative for them to get out and spend You know, here we are with a sort of stagnating economy. Pubs are in trouble, restaurants are in trouble. All kinds of hospitality are in trouble. Craig, get out there, have dinner out two or three times a week, get down the pub, take a taxi home.
Help us all out here. It's been not a moral imperative for people who have the money at this age to get out there and spend it. His children's jobs depend on somebody creating activity and economy. Is that fair, John? I mean I like that approach.
I think definitely. Part of the problem is if you've got a saving mindset, then it can some they can somethings feel moralistic and that, oh, you're squandering money. So flipping that around and saying actly, no, you should be supporting your local cafe, you should be supporting your local taxi company. Yeah, I think that makes a lot of sense. And also, at the end of the day, if it helps you feel better, I'll be going out and spending your money. Then that is quite a nice way to
reframe it. You know, there's a mischief to it, but it's but yeah, if it helps, that's a good way to think about it.
Maybe this is a self help podcast. I don't know, George, what do you think is there a moral imperative for all the people with money to get out of there and have lunch? And by the way, do not take weight loss jabs because if you take weight loss jabs, you will not be spending enough money in the pub. Down with weight loss jabs, up with going out for dinner and drinking. Yeah.
I don't know about the moral stuff. I think I think it's a nice add on. I would definitely say yeah, why not because it gets the economy going and if that gives you a push, then amazing. But the phrase expect to give with a warm hand and a cold is probably also true. You know, if there's a way that you want to start giving your money while you can get to see it again, no one's getting out of this alive, so yeah, go for it if you've got the money.
Defintely, the gifting there's an interesting one because there's always there's always something that's needed, and if it's you know, an entity if it's something like school fees or starting a pension for you know, maybe your grind kids, that kind of thing. You know that there is always stuff that you can do. So I think yes, the model imperative to spend is good as well.
Though, yeah, less worthy, but pretty good, right. I am changing our key phrase on this from no pocket center shroud to no one is getting out of this alive. Thanks for that, George, you will. Thank you very much for coming on today. Thanks for listening to this week's Merin Talks to Your Money. If you like our show, rate review, and subscribe wherever you listen to podcast. Also be sure to follow me in John on exor Twitter at marinas w and John Underscore Stepping. This episode was
produced by Samasadi and Moses and Question. The comments on this show and all our shows are always welcome. Our show email is Merrior Money at Bloomberg dot net