When I left school retirement was a period of around ten years. For example, my grandfather retired at 65 and had died by 72 – fairly normal in those days. If you were more fortunate, you could perhaps retire slightly before 65, but anything before 60 was really for the (very) rich and famous.

Whiz forward thirty years and things have changed dramatically – certainly our life expectancy, if not our approach to saving for retirement.

Either way, most of us would want to retire before 65, with 60 the most likely age.

However, unlike in my grandfathers day, the expected mortality age for a 65 year old is now 84 for men and 86 for ladies.

So, if you have been looking at retiring at 60 that means having to fund your retirement for an incredible 25 years – almost another working lifetime!

And the situation is only going to get worse as our life expectancy gets longer.

This means problems, not just funding but also for how on earth do we can plan for this? And how do we know what we are putting into our pensions now is going to be enough for us when we retire?

Well, the answer is that we (as in Financial Planners) use sophisticated software to help us create a feasible and sustainable retirement model.

We start by inputting lots of data, such as all household income, all family assets, all pensions (both active and non-active) plus your state pension forecasts, any future expected windfalls, all savings and investments etc.

Then we input all of the liabilities – mortgages, credit cards, future liabilities (like children’s education costs) or even that sports car that you’re planning for your midlife crisis

We also input all of your expenses, broadly divided between basic, leisure and luxury.

From this we get our initial plan matrix, which looks something like this:

 

Basically, all the pretty colours represent different income streams/sources, with your age along the bottom.

There are two very important lines running through the matrix.

The first one is the light blue/turquoise which broadly-speaking represents your basic living costs – so if your income stream exceeds this then it means that you’re covering your future expenses.

The second line is the black line (above the turquoise one) representing total spending i.e. it includes leisure and luxury expenditure. So if you’re able to reach or exceed this black line it again means your retirement planning is pretty much on course.

Now, the areas that we’re trying to avoid are RED on our matrix.

These represent when there’s a shortfall between our income and our expenditure – and if this falls below our basic line, we could be in trouble.

In the above example red begins to show at age 88, so further planning may be necessary to avoid this – perhaps downsizing your home etc.

The software will allow us to make changes now to eliminate this red area, such as putting a little bit more into our pensions before things turn red etc.

Interestingly this software also helps us ‘stress test’ any plans that we have by creating ‘what if?’ scenarios.

So after we have built a plan for you we can then put it through some tests to check its feasibility. These tests can include stock market crashes, divorce, death or my personal favourite; the zombie apocalypse. OK, that one I created especially for my clients – but hey you never know right?

So whilst our life challenges may be greater, we do have the tools in our modern retirement theories to help you solve the problems.

Give Me Three Good Reasons

There are generally three good reasons to sell an investment:

The first, surprisingly is that buying the investment was a mistake in the first place and it’s time to dump it and move on.
Second, the investment price has risen dramatically and you think this is as good as it’s going to get.
Finally, the investment has reached a silly and unsustainable price. (Bitcoin anyone?)
So let’s just look at each of these three scenarios in a little more detail.

1.) The Mistake

Presumably, before you bought you put some research into the investment.

But suddenly you discover that you’ve made an analytical error and you realise the underlying asset was not a suitable investment in the first place.

So, you should sell that investment, even if it means incurring a loss.

The key to successful investing is to rely on your data and analysis instead of emotional mood swings. If that analysis was negatively flawed for any reason, sell and move on.

2.) Dramatically Rising Price

It’s very possible that a share you just bought rises dramatically in a short period of time.

Remember, many of the best investors are the most humble investors.

So, don’t take that fast rise as affirmation that you’re smarter than the overall market – you’re not – and, unless you’re prepared for what could be the inevitable fall, then it may be in your best interest to sell, now.

3.) Silly Prices

So when has an investment price gone silly? And, couldn’t this be confused with scenario 2 and a dramatically rising price?

Well firstly, silly prices usually are not the realm of funds and stocks, but more the remit of equities (shares) and this means that we can apply some slightly different rules of analysis.

A reasonable selling rule is to sell when the company’s P/E (Price to Earnings) ratio significantly exceeds its average P/E ratio over the past 5 or 10 years.

For example, at the height of the internet boom in the 2000s when it launched its first website, shares in the retailer John Lewis had a P/E of 50 times earnings. Despite John Lewis’s unquestioned quality (you may want to ask Boris Johnson), any owner of John Lewis shares should have seriously considered selling at that time (and potential buyers should have considered looking elsewhere because there was no profit to be had in buying).

When a loss might be the Best Thing

Any sale that results in profit is a good sale, particularly if the reasoning behind it is sound. That’s obvious.

On the other hand, when a sale results in a loss but there’s an objective understanding as to why that loss occurred, it too may be considered a good sell and may result in avoiding a potentially greater future loss.

Actually, selling is only a bad decision when it’s dictated by emotion rather than data and analysis.