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The Accumulation Stage

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Saving enough money to be able to live off for the rest of your life is a quite a challenge. The question I get asked most often about retirement planning is, ‘How much should I be saving in my pension?’ Whilst there are countless ways of forecasting this figure, probably the easiest rule of thumb is to use half your age as a percentage of your earnings. Whilst this isn’t taking account how much income you need or any other more complicated factors, this simplistic approach serves as a good starting point.

The earlier you can start saving, the better, but it really is never too late. A little is better than none. Not only will you save for longer, you will also start to benefit from compound growth. Compound growth is the effect of the growth on the growth on the growth.

How does this help your pension? The longer you can leave your money to grow, the more impact doing so will have on your savings, because you will benefit from the growth on the growth. The sooner you can start saving, the better it will be. Even if your monthly savings don’t seem like large amounts, over time the money will grow.

Where should you and your children be saving? As a result of the tax relief, a pension is the obvious starting point for the long term, but as I have already explained, it is much better to get to retirement with your money in different tax wrappers, so that you can minimize the tax you pay and maximise the income you take.

The Richest Man In Babylon

One of the books I give as a gift to a lot of people is The Richest Man in Babylon by George Samuel Clason. The stories are written in an ancient, Biblical style, which has the added effect of giving greater clarity of the principles of finance, compound interest, etc.— for example:

For every ten coins thou placest within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.”

If you are saving some of the money you earn, not only does it do your finances a lot of good, it also makes you feel happier and more secure. The quote also suggests that by not spending all of your money, something changes in your psychology: It is as if you are telling nature that you have more than enough money for yourself, and as a result, you seem to attract more of it.

Reading 0315 2The same applies to charitable giving. The phenomenon of giving money away, and as a direct result receiving more back, is known as ‘tithing’. At Efficient Portfolio, we have set up ‘The Efficient Charitable Portfolio’. This is a Community Foundation Trust that contains various charities. The idea is that, as a company, we can put a slice of what we make towards a number of good causes. We also allow clients the option to contribute to the fund, if they wish. Just as we build them a diverse investment portfolio, we also build them a diverse charitable portfolio. They can then direct a monthly amount or a lump sum towards the fund, or leave some money towards it in their Will, knowing that we will continue to select charities that are current and appropriate in the years ahead.

One of the principles covered by The Richest Man in Babylon, and also discussed in Secrets of a Millionaire Mind by T. Harv Eker, is managing money-on-a-month by month basis. This changes when you retire, but not as much as you would think. In order to manage your money effectively, you need to divide your money on a monthly basis.

The Play Account

You work all of your life to generate an income—what’s the point if you can’t enjoy that income? Many people have the opposite problem; they spend too much of what they earn and they never accumulate anything. So it is important you find a happy balance.

The play account allows you to facilitate this in an automated way. Each month you pay a set percentage into your ‘Play’ account. This money you have to spend on fun stuff and treats. If you do not enjoy the money you earn, your subconscious will not compel you to earn more, and you will be less successful.

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We all have bigger capital expenses that we need to save for in the future. So it makes sense to have some long-term savings that you can access before retirement, should you need to. If not, this can be included in your Financial Freedom Number.

By having this capital working hard for you over the long term, it is not sitting idle; however, if you do need money for a larger expense, you have the capital to do so.

Savings For Specifics

You may already know what you want to do with your money. Much better than to borrow at this point is to already have saved for these specific situations. Again, by automating savings shortly after your salary or income drops into your account, you ensure it happens every month. You can then plan the spending in these areas much more effectively, because you will know when you have reached the amount required.

Necessities Account

What is left over needs to be enough to cover all the essentials, like the mortgage, food bills and utilities. Keeping all of these coming out of your income, and away from ‘Play’ and ‘Savings’ accounts, allows you to budget and monitor much more effectively. For me it makes sense to have my income coming into this ‘Necessities Account’, with set Standing Orders established to divert the ‘Savings’, ‘Play’, ‘Gift’, etc. funds into their respective places.


Getting older might make you feel like you are slowing down. Do not be fooled into thinking this is cognitive decline, you have so much information in your brain that it takes more time to access it! You can be stronger and happier in your retirement than ever before. Life is an adventure, you can expect change and embrace it. Learn the right time to retire, how to boost your retirement income and create your dream retirement. Follow your dreams and love what you do!

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