28 September 2009

An iPhone or a Comfortable(-ish) Retirement?

One of the roles taken by financial advisers is to arbitrate between two people - the client when they are in retirement, and the client today. That's because many people will spend money today without giving a thought to providing for their retirement.

Let's face it, a new phone now is far more important to most people than being above the poverty line in twenty, thirty or forty years time.

There's no doubt that pension income will be squeezed in years to come. The amount of help from the Government in the form of the State Pension is unlikely to increase, while the state retirement age certainly will, meaning longer working lives. That's simply because the country cannot afford the status quo (politicans are reluctant to take this on board, but it is certainly the case) - but that's a whole other topic.

So we are left with making sure that we have made our own plans for a pension income, either from employer schemes or from personal contributions. With ever-changing employment patterns the most reliable way is to have a personal pension plan.

If you pay for an iPhone or its successor on a monthly contract throughout your life (say £40 per month starting at age 30), you will have paid around £20,000 by the time you retire (let’s ignore inflation here). If, instead, that money goes into a pension plan then you will have secured an income of perhaps £3,000 per year. Not much, but at least you will be able to run a car!

Now, I'm not against iPhones (or eating out every night, or having two expensive holidays a year, or anything else that you can afford and which gives you a good standard of living today), but I am against depriving somebody – you in retirement - of the basics of life.

If you have read this far then I guess you are not one of the 15% of the population who have given no thought whatever to retirement planning. But you may be one of the 31% who are relying on an inheritance to fund their retirement (numbers from Friends Provident). The message is: “there is a better way”!!

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