There comes a point in life when you have to look at your achievements and decide you’ve done enough, earned enough, and accumulated enough wealth to be happy for the rest of your days.
But when you’ve spent your entire adult life in pursuit of wealth, this may not be so easy to realise. Read on to find out how to recognise when you’ve sacrificed enough and to adjust to living a life in pursuit of pleasure.
You’ve spent your entire adult life in pursuit of wealth, so when do you stop?
If you’re contemplating the idea that you may have enough money and are in the fortunate position that you can afford to live the rest of your life in the style you desire, without compromise, congratulations.
Think you’re ready to stop earning but worry that you might risk what you’ve got and end up without enough to live on after all? To help you reach a firmer conclusion, try answering the following questions:
1. Enough for what?
Imagine what your life minus work might involve. Without knowing how you want to spend your time when you’re no longer working every day, you can’t understand how much money you might need to fund your desired lifestyle.
A life of sailing and golf will require a very different budget to time spent playing with your grandchildren or pottering in your garden. Likewise, upgrading your car to the latest model every few years will cost more than a new hedge trimmer or ride-on mower.
Knowing which camp you fall into will help you estimate the level of expenditure your new non-working life is likely to require.
And remember, the initial phase of retirement is likely to be very different to when you become old and start to suffer as your hips give in, or your knees wear out. You may need long term care.
2. Do you expect to spend a chunk of your wealth upfront?
If you want to relocate and buy a new house, perhaps that’s going to eat into your wealth and change your expected income early on. Initially, you may feel energetic and want to take that holiday of a lifetime, such as a cruise around the world for a few months to celebrate retirement.
Think about the one-off big-ticket items you might want to buy upfront to achieve your retirement aspirations so you can factor them in.
3. How much money do you have and how is it invested?
With life expectancy increasing, don’t be too ready to cash in your investments to fund your retirement. Depending on your gender, health, and lifestyle, you could live for another 30 years once you’ve stopped earning. That’s a lot of time to continue benefiting from compound growth.
Get an estimate of your life expectancy with this tool from The American Academy of Actuaries and the Society of Actuaries.
How to recognise when you’ve sacrificed enough and can enjoy more of what life has to offer
With a better understanding of how you want to spend your time after you stop work and how long you might expect to live, you can calculate if you have enough to fund your dream retirement.
This exercise will involve gathering all your assets and getting a thorough, up-to-date picture of everything you hold, including:
- Private company shares
- Fixed-interest bonds
Collating all this information can be onerous. Don’t let it bog you down – we can help.
We’ll look at your entire balance sheet and ensure you have enough financial assets to buy what you need, when you need it – all within your risk tolerance.
How to know when you have enough and to retain the value of your wealth
Inflation proofing your investments is good practice.
If you expect to fund a long retirement, it may be wise to keep your wealth invested.
Liquidating your assets or letting your pension automatically fall into a lifestyle strategy fund, supposedly designed to keep funds safer, is probably one of the worst things you could do.
If the thought of stopping work and ending your regular income stream makes you nervous, you may find your risk tolerance also alters. Depending on the wealth you have and the lifestyle you hope to fund, you may find that it’s time to de-risk your investment portfolio.
The important thing to keep in mind is the length of time you’ll need an income and making sure the wealth you have isn’t devalued by inflation over the long term.
You’ll also want to ensure you’re drawing an income from your investment as tax-efficiently as possible. For example, if you have investments other than your pension, you may want to draw your income from other holdings before you dip into your pension savings.
This also has the added advantage that wealth held in a defined contribution pension normally falls outside your estate, meaning you can pass it on without incurring an Inheritance Tax charge.
We can help you strategise how to draw the most tax-efficient income from your investments, taking all your allowances and personal circumstances into account.
You don’t have to wait until you die to pass on your wealth – share the joy while you’re still alive
Another consideration for your new non-working life may be to gift some of your wealth while you’re still alive to share the joy with your family and loved ones. This also has the added benefit of helping to reduce your IHT liability. But it’s important to make sure you won’t leave yourself short of funds, especially if you expect to have a long life.
Concerned that a long life expectancy or a need for care in later years will erode your wealth? Whole of life insurance will allow you to leave a legacy behind, no matter how much you have to spend while you’re still alive.
Often used for IHT purposes, make sure whole of life insurance is written in trust. This will protect the payout and ensure funds are distributed according to your wishes.
If this is something you think may be a good idea for you, the sooner you buy the insurance the better because the cost of premiums will depend on your age, health, and lifestyle, as well as how much cover you want.
Get in touch
If you are ready to stop work and want to make sure you have the wealth to fund the lifestyle you desire long into the future and want to discuss your options, we can help put you on the right track and give you peace of mind.
We specialise in building, managing, and preserving the wealth of Hong Kong’s international community. By creating a personalised, comprehensive financial plan, we can help you realise and achieve your greatest goals in life.
For more information, email firstname.lastname@example.org or call +852 3975 2878.
Please note: The value of your investment 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. Your pension income could also be affected the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.