Many of us dream of retiring sooner, yet for most it is an unrealistic target. People are now working past retirement age to maintain their lifestyle and standard of living.
However, the founder of Goldsmith Financial Solutions, Hannah Goldsmith believes that with some small changes, it is possible to drastically change a retirement plan.
Thousands of business owners could retire earlier if they took the time to review the fees being charged on their retirement and investment plans. Let me explain why and give you an example to compare the difference that can be achieved.
The Financial Services Industry charges fees on all investment products – that’s how they get paid for the advice they offer and the work they do setting up and managing funds and portfolios.
There is nothing wrong with that – but most people, even business people, have no idea what these fees are, and they have virtually no understanding of the impact these fees have on the value of their retirement fund.
Why don’t we shop around on fees for what is really important in our lives; our retirement lifestyle? Even if you love your business if you could get the same return on your money with the same consumer protection, but by shopping around you could retire sooner – why wouldn’t you?
Regardless of age or how much money you have, high industry fees can delay you reaching your desired date to sell your business, or hand it on to the next generation; the day you start your retirement.
With the changes implemented following the ‘Retail Distribution Review’ (RDR) five years ago and the new update to the Markets in Financial Instruments Directive (MiFID 11) which came into force on the 3rd January 2018, investors have never had so much information available to them.
Investors now have the power to take back control of their money from the Financial Services Industry and do what’s right for them. After all, this is your money and you are saving for your retirement not your fund manager’s. Yet very few investors understand the fees they are paying and the impact of those fees.
And that’s the problem; without knowing the total Financial Services Industry charges and the impact that has on our long-term future wealth, why would we do anything about it, and how would we know what to do?
Perhaps it is because we do not have sufficient information presented to us when we invest, to allow us to make that decision, or we do not want to look ignorant in front of our trusted advisor or perhaps we do not think it is happening to us.
LET’S HAVE A LOOK AT AN EXAMPLE
Inventor A is aged 45 and has pension and ISA savings valued at £300,000 and wishes to retire with a fund in the region of £750,000 and preferably at the age of 65. The total financial services industry cost on their money is 2.5% per annum. Assuming an average growth rate of 6% per annum the fund value would not achieve the target value until the investor is aged 73.
Remember, £300,000 of this fund value was Investor A’s money to start with, a profit of £467,000 has been generated and it has taken 28 years to achieve target value. You may be surprised to find out that the total Financial Services Industry charges have totalled £345,512 over this time.
It has therefore cost Investor A £345,512 to make £467,000 and they have lost eight years of their desired retirement lifestyle.
Investor B, also aged 45 and with pension and ISA savings valued at £300,000, wishes to retire with a fund in the region of £750,000 and preferably at the age of 65, decided to review the industry costs. Investor B realised that they could get the same returns and same consumer protection for 1.1% per annum. They also achieved an average 6% return per annum on their money. They achieved a target fund value of £773,000 by age 65 – eight years before Investor A.
In other words, they have achieved their target retirement fund value at their projected retirement date with one simple decision; shopping around to get the best fees.
As £300,000 was Investor B’s money anyway they have made a profit of £473,000 in 20 years not 28 and it has cost investor B only £102,000 (not £345,512) to make £473,000 and achieve their lifestyle objective. If at the time they decided to delay retirement to age 73 like Investor A, the fund value would continue to compound and be in the region of £1,128,500, an additional increase of £360,000.
WHICH TYPE OF INVESTOR ARE YOU?
Just by being prudent and understanding the impact these Financial Services fees have on your money you can keep more of your investment for yourself and your future retirement lifestyle.
Take control of your hard-earned money. As a business owner you should be able to continue working for as long as you want to. And be able to retire at the time that suits you best.