No matter what your long-term goals are, achieving them requires financial stability and a specific amount of money. In essence, you need a target.
That target is known as your “number”. Your number represents the total sum you need to achieve financial independence, retire confidently, and support your loved ones.
Your number could be a substantial amount that enables you to pursue your biggest dreams, or simply the figure that allows you to live comfortably and content with everything you need.
Financial planning can help you to both determine your number and reach it, ensuring you have the resources to turn your aspirations into reality.
Read on to discover how to find your number and why doing so is key for successful financial planning.
2 questions can help you find your number
Your number represents the value you would need to retire and still be able to achieve your goals.
Several factors influence your number, but they all stem from two fundamental questions:
- How much income will you need in retirement?
- When do you plan to retire?
While each question contains additional considerations, they serve as the foundation for determining your number.
How much income will you need in retirement?
Determining how much income you’ll need in retirement is key to finding your number, as it outlines the kind of lifestyle you want to have when you no longer work.
To arrive at a rough estimate, you should consider various expenses, including:
- Regular expenses – These include everyday costs like utilities, groceries, mortgage payments, and leisure activities.
- Major expenses – This covers larger costs such as holidays and travel, home renovations, or funding your children’s or grandchildren’s education.
- Care costs – Care expenses in the UK can be significant, so it’s important to factor in the possibility that either you or your partner may need care in later life.
- Legacy planning – This involves considering how much you wish to leave to your loved ones, taking into account any Inheritance Tax (IHT) liabilities on your estate.
Of course, there are many variables you can’t account for, such as life expectancy, ill health, and inflation, but a financial planner can work with you to find an approximate range of figures.
By understanding how much is “enough” for each of these expenses, you may find that you can retire earlier than expected. On the other hand, underestimating certain costs could stretch your budget and hinder your ability to fulfil your retirement dreams.
When do you plan to retire?
The timing of your retirement is primarily determined by how much income you’ll need to support your retirement versus how much you’ve already saved. The earlier you plan to retire, the more you’ll need to save, and vice versa.
For example, retiring at 57 instead of 67 means you’ll need a significantly larger retirement fund. Not only will you require an additional 10 years of income, but you’ll also have 10 fewer years to contribute to your pension, making early retirement more financially demanding.
A report in Actuarial Post found that a 60-year-old with a modest pension worth £200,000 could see a 16% increase in their annual income by delaying retirement by just one year, assuming they continued contributing £200 a month.
Of course, there are also emotional considerations to planning for your retirement, such as how much you enjoy your job. After all, many people continue working far beyond when is necessary for them to achieve their desired retirement lifestyle.
However, your desired income is the key driver as it is ultimately the variable that can determine whether you’re able to retire or not.
A financial planner can help you find your number and plan for your future
If you’re unsure about how to find answers to the questions you read above, a financial planner can help.
They can use cashflow modelling to help you map out your current income and future expenses. Cashflow modelling looks at your income, savings, and both current and future outgoings to assess your potential financial position over time. It also takes into account uncertain factors that could impact your retirement needs, such as life expectancy, market fluctuations, and inflation.
While these variables are unpredictable, a financial planner can simulate different scenarios to project your future expenses, providing you with a clearer understanding of the range of funds you may need to achieve your desired retirement lifestyle.
In short, they can help you find your number and then create a plan for how you will achieve it.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
