Saving for retirement – so what’s to smile about?


Saving for retirement – so what’s to smile about?

Saving for retirement is hard work but well worth that smile in retirement! The little things in life such as mortgages, rents, school fees etc tend to get in the way of this important saving.

When looking ahead to post retirement years, I feel it is important to look through the lens of projected expenditures. It’s important to think in terms of your personal funding ratio – which simply divides your assets (present and future) in today’s money, with your required future outgoings (liabilities), again in today’s money.

Your personal funding ratio focuses your mind on “Goals Based Investing” which we will cover in a later blog. Essentially the bigger the pot you save the more likely you will be able to attain the right pattern of cash flows throughout the stages of your post retirement cycle.

So what do you think your future expenses will be over different periods of your retirement? I like to think of it as your retirement smile.


It goes without saying…..the more you save today the bigger will be your smile at retirement!

So let me just explain where the “smile” comes from. In the first few years of retirement you are likely to spend more money……you will be more active and agile in your earlier years, you will want to go on all those fabulous holidays in exotic places that you had been planning for decades, treat your grandchildren etc

In the second phase of your retirement you’re likely to spend less money. You’re getting older, less agile with a more sedentary lifestyle and spend more time at home. In the final stage of retirement your expenses will again increase as you become less mobile and may need to pay for a retirement home or the cost of home care is likely to mean your bills start to pile up.

Prior to the introduction of the governments new “freedom and choice agenda”, the orange and blue columns in the chart above were representative of a typical Defined Contribution (DC) saver. In year one, as a newly retired pensioner, you would be likely to take out the maximum tax free lump sum of 25% and at the same time buy a level annuity.

However given the increased flexibility introduced I believe we will have even more to smile about! And in my next blog in this series, I will set about explaining how our smile is likely to change and the implications for providing better quality and more flexible choices to DC members going forward in this brave new world of pension reforms post April 6th.

Sital Cheema-Associate Director, Client Strategy & Research EMEA


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