If a client leaves an adviser meeting with a confident feeling about their financial future, they probably feel that way because of a job well done.
No doubt they have a fully considered plan, which has allowed for different scenarios, and has the appropriate safety nets in place.
The plan will be revisited and adjusted accordingly as circumstances change, but generally the client will feel comfortable with the path they’re on.
They will have healthy saving habits for rainy day funds. They will be making regular meaningful contributions to their pension. They will have their other savings and investment vehicles and know everything is being handled in the most tax-efficient way.
They will have discussed their retirement aspirations, considered how they want to support family members now and later, and have factored in the transfer of wealth. Most importantly they will trust their adviser, understand the true value of the relationship, and appreciate the peace of mind it brings.
So, perhaps quite rightly they will feel confident about their retirement prospects, while still being able to enjoy life today.
High retirement confidence is a good thing if there’s a valid reason. I’m sure every adviser wants all of their clients to have that feeling.
But unfounded confidence is a different thing entirely
This can have catastrophic effects on long-term retirement income and impact an individual’s financial and overall wellbeing.
If someone is relying on their own gut feeling as to whether they will be able to achieve the type of retirement they hope for, they could be in for a rather nasty surprise.
Confidence needs to be realistic. With there being more responsibility on individuals to save for their later life, it’s not something they can afford to get horribly wrong.
How much we need isn’t an exact science. Many people might not even be able to hazard a guess. Or could be way off the mark if they attempt one.
It’s the same when it comes to how long we might live. If we do provide an answer, we’re likely to underestimate our life expectancy. And yet, there is a real possibility many of us will join the centenarian club.
The problem is there are so many unknowns
It’s hard to picture what our future will look like. For younger people retirement might feel like such a long way off that they avoid giving it the attention it deserves now.
Advisers and those supporting them know that as a society we could do with getting more people to save more.
Ideally, they should have started yesterday but if that didn’t happen then we need to fall back on the “there’s no time like the present” motto.
One of the biggest findings from our inaugural Nucleus Retirement Confidence Index was people potentially overstating their confidence levels when it comes to retirement. Another was the importance of planning and advice.
Having a plan inspires confidence
Having a plan in a place and a qualified adviser to shape it and revise when necessary, can inspire confidence.
We found the closer someone gets to retirement, or once they have actually accessed benefits, then confidence levels broadly increase. Respondents made comments around knowing their income and expenses and being comfortable with that balance.
It stands to reason that someone can appreciate what their situation is likely to be if they’ve already had a taste of it, rather than it being a projection on a computer screen or piece of paper.
But worryingly some groups expressed high levels of confidence without much justification and cited potentially naïve reasons for how they would secure an income in retirement, which would not be recommended by a financial adviser.
With us living in uncertain times, even those with more reason to feel confident may decide to step back and reconsider.
Updated retirement living standards published this month (February) revealed the income needed in retirement has jumped as costs have increased and expectations have shifted.
Minimum retirement living standard
The Pensions and Lifetime Savings Association (PLSA) estimates the minimum retirement living standard has increased from £12,800 to £14,400 for a single person and from £19,900 to £22,400 for a couple.
For a moderate retirement living standard it has jumped from £23,300 for a single person to £31,300 and a couple would now require £43,100, up from £34,000.
And for what the PLSA deems a comfortable retirement we’re now looking at £43,100 for one person (up from £37,300) and £59,000 for a two-person household (up from £54,500).
This could have a major impact on confidence levels. As Financial Planning Director at Wingate Financial Planning, Alistair Cunningham summed it up in our study: “The reality is that many people should be unconfident – this is because their plans may not be fully considered, and they may not have enough, nor be saving enough for a comfortable retirement.”
Overconfidence can be a dangerous thing
Can consumers be genuinely, and rightly, confident in their financial future without either a plan or a financial adviser?
The truth of the matter is for all but a very few people, meaningful, informed retirement confidence requires the input of regulated financial advice.
If we want to get more people to understand why they are saving and what for, they need to feel empowered in an environment of trust and stability.
It’s one of the many reasons Nucleus has called for an independent long-term savings commission.
We’ll be paying close attention to how confidence levels change when we revisit our Retirement Confidence Index study later this year.