What does that number mean?

I got a referral last week for a company director who wants to start a pension. He’s a really nice guy, his company is beginning to do quite well and he wanted to put €25,000 a year away into a pension fund. He wanted to know what that would give him at his planned retirement age of 65. If his fund grew by 6% EVERY year from now until retirement (that’s another topic), the quote machine told me his fund would be worth €865,552.62 when he was 65. Our conversation then went like this:

Me: What does that number mean to you?

Mr Client: Not a thing.

Me: What is it that you want to do between right now and when you die. Never mind all the other stuff that you don’t yet know about that will happen as well, what is it you want to do now?

Mr Client: Send both my daughters to college, pay for 2 weddings, ski holiday and sun holiday every year for the next 10 years, then just sun holiday, retire at age 65, go on 3/4 holidays a year, get a new car. Overall, my wife and I are pretty happy with our life at the moment, so we want to carry on living the way we are.

Me: After taxes, will €865,552.62 be enough for you to do all these things and everything else that comes up in between?

Mr Client: I don’t know.

Me: Do you want to find out?

That is what financial planning is all about.