I’m getting fit, which is a long way off saying “I’m fit” in any sense of the words. But just getting rid of the first few pounds has put me in a much better frame of mind.
Many of us put off organising our retirement finances – just as I’ve put off going to the gym. The enormity of the task ahead is too daunting, the cost of a financial adviser (like a personal trainer) is too high and anyway, nothing’s gone wrong – yet!
But there’s always that nagging feeling that while you put things off, things get worse.
If you are in your 40s and 50s, you may be thinking about how you might wind down and use your savings to supplement your earned income. If you are later in life, you may be wondering how to call it a day and budget to live on what savings you have got.
Planning a budget for a month ahead is hard enough, but when you are trying to allocate savings to events years away, it’s so hard that most of us just give up. One of the troubles is that we are used to planning with the certainty of an income in mind.
And like it or not, most people – by the time they reach their forties – have reached a plateau – their natural level of income -whatever that may be. The prospect of losing that base level of income drives most of us.
Isn’t it odd that at some arbitrary point in time, we determine that we can switch from earned income to unearned income and rely on our savings to provide us with that income continuity?
Continuity or guarantee?
Personally, it is the reasonable prospect of a steady income, which is what I look forward to. Nice as it is to have guaranteed increases in my Zurich Pension, I am prepared to give up guarantees on my DC pot, for a degree of certainty that the money I’ve saved at work and when self-employed, provides me with “income continuity”. After all no one ever guaranteed me work more than three months ahead!
For me – CDC works fine – a promise of continuity of income, not a guarantee of what that income will be. Together with the State Pension which i get at 67, I feel that my DC savings, if transferred to a CDC plan (which I intend to do), would probably allow me to pack it in if the Pension PlayPen, First Actuarial and AgeWage (my three jobs) stopped paying me.
And like the Royal Mail staff, who are waiting for what they want to come along, I have a plan B. So I feel I am “retirement ready” (though not ready for retirement). I have a plan B!
Why do I sound so confident?
A few years back, I drew up a list of all the retirement savings I’d made (including ISAs and investments in my businesses) and I decided on what I wanted to do. The ISAs I left alone- they might not be optimal, but I’d made my bed and now I would lie on it. I didn’t want to spend a lot of time worrying about my mortgage repayment fund!
As for my income, I knew I had some DB and I decided to maximise the income I could get from it , by not taking the cash sum (tax-free as it was) because it would cost me such a fall in income (the actuarial factors for swapping income for cash weren’t good for me).
I am confident in the state’s ability to pay my state pension and I got lucky – having been contracted out – I discovered I can make up the lost entitlement to state pension by working through till 64 – after which I will get a full pay-out – fully inflation protected – perhaps over inflation protected.
But the single thing I did – which makes me very confident, is that I brought all the little pots I’d built up over the years – together in one great big pot. It took me some time, some of the money couldn’t transfer without penalty till I was 55 and some of the money transferred very slowly. But it all came into my one big pot eventually.
Which means, that when I come to spending my savings, I can do it in a manageable way.
Getting retirement ready with AgeWage.
Because it was so hard for me (a so-called “pension expert”) to get all my pension pots into one big pot, I’ve decided to start a business called AgeWage, which helps ordinary people – the 94% of us who don’t choose to, or can’t afford to – take financial advice.
AgeWage will provide (through my and other people’s blogs and advice columns) – a personal fitness regime for your retirement finances.
More importantly still, it will help you to understand the historic value of your pension pots. AgeWage will do this by valuing your pots using a scoring system called the AgeWage Algorithm (AA). Each pot we look at – we’ll research by looking at all the contributions you received from your bank account, employer, national insurance rebates and tax relief.
And we’ll look at all the money that came out of your pot to pay advisers, fund managers, brokers, dealers, custodians, lawyers and of course the pension providers themselves.
What AgeWage will do for you is provide you with a single number- which is your historic pension fitness score. We call it….
And the number and screen colour will change depending on whether you can move this money without penalty. Green numbers are transferrable and red numbers aren’t. For instance if you have transfer penalties and they fall away soon, you may be better off keeping your money where it is.
What AgeWage does.
The analysis within the number is not “subjective” – it does not rely on “opinion”. It is “objective”. It is created by data. So long as the data works and the algorithm converts the value your pot has given you and compares you with the money it has cost you, that number is infact an objective “value for money” score.
Even the colour of that score is determined by an algorithm (one that picks up on oddities like exit penalties, terminal bonuses and guaranteed annuity rates).
What AgeWage doesn’t do
AgeWage won’t tell you what to do. There are literally hundreds of pension providers who will offer you ways to spend your money (or pass it on to your inheritors). At the moment these include SIPP providers, workplace pension providers , personal pension providers, annuity providers and I hope that in the future they will include CDC plans!
That choice is yours – and though AgeWage may in time help in the choice of your future way of spending your money, we won’t ever try to sell you one way over any other.
If you want advice, we may point you to good advisers – but we won’t be giving you advice.
Getting retirement ready
As I prepare for my daily battle with my weight and failing limbs, I realise that the pain I’m going through is worth it. Every extra day I live is a happy day- and a well funded day – thanks to my having a wage for life from Zurich (thanks) and from the State (thanks in anticipation). I want to protect myself from living too long, because I intend to be extremely healthy and live into extreme old age !
Financial fitness goes hand in hand with personal fitness, they are my two life goals, I have an after-life goal too – but that’s a matter of faith!
If you want to become retirement ready, keep reading my blog.
If you want to help me at AgeWage, drop me a line – we will need lots of people testing our hypothesis over time! We may even end up giving you a job!
If you want to use AgeWage, you’ll have to wait a few months while we analyse enough data to be able to make our numbers definitive.
We’re in deadly earnest, Chris Sier and I want to get you retirement ready!