Personal finance: What price do you put on contentment?
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How much is enough?
The question posed above might be one of life’s great imponderables, although it’s one to which many of us have devoted plenty of time over the past eighteen months.
A series of pandemic-inspired lockdowns have given a large number of people an unexpected opportunity to calculate just how much they’re likely to need to retire, take a career break, to wind-down from full-time employment, or simply to run away, become an avant-garde artist, drink absinthe and smoke Gauloise cigarettes.
Okay, so the last option might prove a little too left-field for some.
Nevertheless, whenever we’ve considered what we might do, post-pandemic (or after we’ve accepted that we must live with Covid-19 for the foreseeable future), and attempted to calculate how much is needed to fulfil our ambitions, it’s reasonable to assume that most folks abandon the exercise, frustratedly asking themselves ‘how long is a piece of string?’. It’s an easier question to answer...
We all have an idea of how much we would like to have in the bank, though reality means we must exclude the likelihood of a significant Lottery win, albeit that it would come in handy.
Instead, to answer the question posed at the top of the page, we must first take account of our current circumstances and consider when we’re likely to need access to our savings or pension pot.
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According to a report published by asset management company Vanguard, most folks can save tens of thousands of pounds simply by delaying the point at which they tap into their pensions. Instead, they should live off other savings, assuming they exist in sufficient quantity, once they’ve waved goodbye to the world of full-time work.
Vanguard’s research revealed that leaving pensions untouched for as long as possible and drawing income from other sources of saving, such as an ISA or general investment account, could leave people with an income 14% higher than they would have enjoyed had they drawn down their pension upon retirement. Vanguard highlighted an added bonus: namely the fact that folks who delay drawing from their private pension will also pay 25% less tax.
It goes without saying that how much we need depends upon what we want to do when we reach say, the age of 60. Retire early? Work 2-3 days a week (an increasingly popular option for millions)? Blow it all on a post-pandemic world cruise?
Then we must consider whether we wish to live extravagant lives or just be comfortable and suffer no money worries?
As Johnny Nash famously sang, “There are more questions than answers”.
One element people often overlook when calculating their ‘how much is enough’ figure is the state pension.
Depending upon the level of National Insurance Contributions (an income tax by any other name - as has been made very clear this week) you made during your working life, the current maximum state pension is £179.60 a week, or £9,339 a year. A couple, then, could enjoy a gross state pension of £18,678, enough to cover basic living costs assuming they have no mortgage outgoings.
The figure is, however, around 25% less than the national average wage and while we’re promised it will return to being index linked at some point in the future, it is unlikely to be sufficient to cover relative ‘luxuries’ such as new clothes, shoes, eating out or that one thing the nation currently craves: holidays.
On top of this, you may fancy changing the car every 4-5 years, having work done on the house, especially stuff that gets decidedly more difficult as we get older. Note we haven’t mentioned care costs.
Nor have we mentioned happiness, wellbeing or contentment. What value do we place upon them?
Almost eighty years ago, a psychologist named Abraham Maslow wrote a paper titled “A theory of Human Motivation” in which he outlined his hierarchy of human needs, a theory that met with protracted academic criticism. Over the next eleven years, therefore, Maslow fine-tuned his theories and in his 1954 book, Motivation and Personality, he presented the world with his completed hierarchy. This divided human needs into three separate areas: our need for self-fulfilment; our psychological needs and finally, our basic needs.
If we overlay Maslow’s hierarchy onto our original question while considering where we include our corresponding pursuit of happiness, wellbeing and contentment, the enormous scale of the original question becomes evident.
To conclude, we can only answer some of these questions, fulfil some of our needs, because there is so much to consider. Which is why the answer to the original question is: it’s different for everyone.