Building wealth for the unknowns

“Why, when people have enough money, do they need to continue to invest? Why continue to take that risk?”

It’s a good question. I’m a big advocate for building wealth intentionally rather than mindlessly accumulating as much as possible, so my stance on risk, and the need to remain invested, might seem somewhat contradictory. 

But there is a reason why you need to stay in the game.

Setting aside the fact that the purchasing power of cash is inevitably eroded by inflation year in year out, we need to build wealth for the unknowns.

But how much IS enough?!

You can’t know everything, but you can plan for it 

One of the first things I ask new clients is to tell me about their vision for the future, their dream retirement perhaps. Some clients have big goals for the future, others have more modest ambitions. It doesn’t matter whether their dreams are huge or humble, once we’re all clear on how they’d like to spend their future life, we can work out how much they’ll need to fund it, and what needs to be done to get to that amount.

Of course, as I explained last month, it’s hard to work out exactly how much we’ll spend in retirement, not least as we don’t know how long we’ll live, nor what life will throw at us. All the more reason to take a few risks with our money! It’s good to stress-test, and to have a little bit more than we think we need.

Another unknown is our retirement date. In planning, an easy ‘fix’ is to just assume we’ll work on for a while, keep the income flowing. Almost 70% of workers believe they’ll retire aged 65 or perhaps a bit later, but just 31% of actual retirees retired on plan, according to a survey by JP Morgan.

You might be thinking: “Good for them!” But just 35% of those who retired earlier than originally planned did so because they could afford to. Shockingly, more than a third left the workforce early due to health problems or a disability while 16% left to care for a spouse or family member.

One of my clients said this week: “I love my job, and financially I need to keep going, but I'm aware I'm old for my industry and technology is moving so fast that it's harder for me to keep up. So although I think I'd be bored not working, I suspect I'll get to a point where I'm not suitable anymore, or I can't be bothered with the politics anymore!’  

Redundancy, outdated skills and age discrimination can play a role too. You’d think our skills and experience would make us indispensable as we age, but the older you are when you lose your job, the harder it can be to get another. 

Besides, when we look at how quickly artificial intelligence is evolving, it might not be long before robots pose a much bigger threat to us than 22-year-olds. 

Your priorities might change too

It’s not all bad news, though. Although some changes are out of our hands, others will be voluntary. 

Your current retirement plan might involve skydiving, motorcycling, and sailing fast catamarans (nod to Steve Baker MP for Wycombe), only for you to reach State Pension Age and feel happy enough holding your grandson’s ankles while he braves the monkey bars. 

Thankfully, this is an affordable transition But, if your priorities change in the opposite direction, you’ll also have freedom and flexibility if you follow my advice and plan for the unknowns. 

You might be on track for the retirement you want, but with my help we can get you on track for the retirement your future selves might want too. 

What about life’s curveballs? Adult children in a crisis, a need to fund healthcare, or assisted living in later life?

Balancing wealth and health 

There’s a balance to be made, of course. In our quest to become financially free and protect ourselves from negative life events, we need to be careful not to cause negative life events through overwork, inactivity, and the neglect of our loved ones. 

It’s no secret that life expectancy is rising, but many of those who reach their 90s and beyond spend their later years in poor health. Some of the factors that determine our longevity are out of our control - just like the stock market! But we do have a say in healthy ageing - what we eat, how active we are and how much sleep we get. 

Of course, it can be hard to make healthy behaviours a priority when we’re focused on our finances.

I often meet clients who work 50 or even 60-hour weeks because they assume they have to, but when we crunch the numbers, reassess their portfolios, and identify what truly matters to them in life, we can usually find time to spend on their families, hobbies, and health. 

It’s impossible to know when we’ll retire or how long we’ll live. But by paying less attention to the unknowns we can’t control (stock market crashes, pandemics, redundancies), we can pay more attention to the actions we can control (insurance, asset allocation, exercise). 

Finding the perfect balance between wealth and health will not only protect you from the financial unknowns, it will protect you from the health unknowns too. Risky? I don’t think so.