During your working life, retirement can always seem a long way off; something to think about at a later date or on a rainy day.
However, with life expectancy now so much longer than for previous generations, those entering and mid-way through their working lives will need to start taking retirement planning more seriously from an earlier age – or risk finding out they can’t afford the retirement they want when it’s too late.
Reaching retirement isn’t necessarily the nirvana you may want it to be. Getting to that much-anticipated date – whenever you decide it may be – and even with a relatively healthy pension fund, there are still several considerations to factor in.
Our financial advisers share their top tips on creating a successful retirement strategy.
If there’s one tip for having the best chance at a financially secure retirement, it’s starting to save from an early age. It may seem a bit depressing to say that you should start planning for when you stop work as soon as you begin working, but that really is a sensible approach. Due to the effect of compound interest, the impact of delaying investing for later life by even one year can be significant.
Whilst auto-enrolment will see many younger adults begin saving into a workplace pension from an early stage in their working life, this isn’t necessarily going to be enough to fund a comfortable retirement. Those that choose to set up their own business or become self employed will need to organise setting up their own pension provision.
Review progress at regular intervals
Once regular contributions have started to a pension and/or an ISA, many people may switch off from thinking about retirement savings, mentally filing it as ‘job done’.
When they get closer to retirement age and take a look at their pensions, ISAs and any other investments, they may get a surprise. Whilst the surprise may be pleasant for some, for an increasing number of people, retirement pots are not meeting expectations.
To avoid any unwanted surprises, you should take an active interest in your later life savings, reviewing where things stand on at least an annual basis. Rather than waiting until you are nearing retirement to realise that you haven’t saved enough, work backwards from your proposed retirement date and how much you think you will need each year to work out if you are on track. If not, you may need to review how much you are saving and increase this accordingly.
It’s also worth pointing out that life doesn’t always work out the way you plan and although you may consider yourself fit and healthy at any given time, there may come a point when you are no longer able to work – severely limiting your ability to save. This could happen at any age but by putting away larger amounts as and when you are able to may allow for some peace of mind.
Not investing enough is an area where many people fall short in retirement planning. As a general rule, the minimum you should look to save is between 8% and 10% of your income for retirement. (Those already contributing to a workplace pension may already be making regular contributions, which count towards this).
It may be that the proportion of your income you opt to put away may differ at different stages of your life. At times where other life factors take priority – such as buying a house or having a family – your ability to pay into a pension may reduce. However, to compensate for these times, you should consider boosting your pension pot with one-off deposits as and when you are able to or putting away a higher proportion of income at other stages.
Adjust risk profile
The amount of risk to be taken in an investment portfolio will vary from person to person, depending on their attitude towards risk.
Risk should also be reviewed at several points throughout the investment journey. In general terms, the further away you are from needing to access funds invested, the greater the level of risk your portfolio should be able to withstand. Some clients may take a different approach to risk depending on where an amount of funds is held – for example, greater risk may be taken with a pension fund where access age is still several years away. As clients get closer to retirement and needing to access their funds, many will reduce their overall risk profile.
Be prepared to make compromises
Unfortunately, few of us will be in a position where we will be able to afford all of the things we may want our money to stretch to. Wanting to provide a nest egg for children is a common goal in retirement, but so is living retirement to the full through holidays and hobbies. Attaining one of these may need to come at the cost of others and there may come a point when you have to choose where your priorities lie. Others may decide that they will need to work longer in order to achieve a situation they’re happy with.
Unlike days gone by when retirement started at age 65 come what may, many people now take a different approach to ‘retirement’ and may opt to work later into life, albeit often fewer days per week. It’s great to have options, and with careful consideration of your goals and an honest appreciation of what this looks like in monetary terms, a compromise can be reached.
To discuss any of the above points, please contact us to speak to one of our advisers.