Retirement planning

Is financial planning and retirement planning the same?

Readers will be aware of the increasing longevity of Australia’s population due, in part, to advances in medical science. It has been predicted that over the next 20 years the over-60 population will be somewhere between 20 per cent and 25 per cent of our total population.

When these factors are linked to a trend towards earlier retirement, a person at age 55 today may need to provide funds for 40-plus years of retirement. This may be longer than the retiree has been in the remunerated workforce.

This factor places stress upon financial planners attempting to provide sufficient income for a couple for an extended period.

Indeed, financial planning firms are developing and marketing financial packages addressing this dilemma.

Due to clever marketing by the financial industry, many Australians have been led to believe that financial planning is synonymous with retirement planning, but this is only true to a point.

Indeed, studies in the US have shown that financial issues in retirement (while still most important) are the number four concern behind the maintenance of mental and physical activities.

Research by a leading specialist in retirement lifestyle planning in Australia indicates that there are deficiencies in the way many financial planners proceed to ‘know the client’s needs in retirement’.

Some financial planners feel that having established a long-term relationship with the client they know how the client will wish to spend their retirement (that is, similar lifestyle to that which they presently enjoy).

Some simply provide a short ‘tick box’ within their fact finding sheets of desired lifestyle activities while others enquire briefly about the client’s thoughts on their desired lifestyle in retirement.

Research shows clients will be aware of about six lifestyle issues. Experienced coaches strongly support the finding that very few pre-retirees know what their lifestyle needs are to ensure a happy, contented and fulfilling retirement.

At a financial planning conference in Brisbane in 2004, planners were asked to nominate lifestyle issues that clients should consider in planning for their retirement. A total of six issues, including financial issues, were identified.

Interestingly, my research has identified more than 100 lifestyle issues and sub-issues that need to be considered when developing a lifestyle retirement plan for a pre-retiree.

Generally speaking, financial planners proceed on the basis of maximising the retirement income stream.

However, there comes a time as the client approaches retirement that other issues enter the equation — lifestyle issues.

The observation by the American Geriatric Society that “retirement involves one of the most dramatic changes adults face in their lifetimes” in no way denies that monetary issues are very relevant, but by the same token, the sum of money available for retirement does not always guarantee health or happiness in retirement.

Baby Boomers are becoming savvier about the importance of lifestyle needs in retirement. ‘Spending Kids Inheritance’ stickers are being seen far more widely than before.

Baby Boomers are regarding the first step in successful retirement planning as the development of a lifestyle retirement plan setting out their desires and what they want to do in the first year of retirement and beyond.

Based upon this valuable information, a financial planner is able to construct a financial plan tailored to the client’s desired lifestyle.

However, within the foregoing framework there is a gap in educating the public about lifestyle retirement planning and the issues involved.

An astute publisher will perceive this increasing readership population and take steps to advantage themselves of the situation. An equation has been developed by lifestyle retirement planning firm Third Age Options that reads:

A lifestyle retirement plan + a financial plan = a complete third age (retirement) plan.

This seems to make sense, doesn’t it?

It therefore follows that financial planning is a part, albeit an important part, of a complete retirement plan. It is contended that the financial plan should be undertaken after the pre-retiree has decided what sort of lifestyle they want in retirement.

All too often, lifestyle issues are given cursory treatment when significantly more importance should be placed on them.

Alan Greig is a gerontologist and director of Third Age Options, specialists in retirement planning and associated issues.