It’s important to plan ahead for your retirement. Once you finish work you want to be able to lead a good lifestyle – and afford to do many of the things you could never find time for when you were stuck at work all week.
That lifestyle can be achieved – but it’s a lot harder if you don’t plan well and plan early. Indeed, one in five people is said to be entering into retirement with an income below the Minimum Income Standard. If you want to avoid this, then there are a few key things to consider.
What type of pension do you have?
Different types of pension require different decisions so it’s important to review your policies and understand what you have you to do next. Personal and stakeholder pensions and defined contribution schemes require you to make a choice about where your pension money is invested. This will be spelt out to you, but it’s important to do your research and are confident that you understand the choices you are making.
On the other hand, if you have a defined benefit scheme then your employer makes an investment decision and provides you with an income for your retirement.
No matter what you choose, it’s important to get an estimate for the income you could expect from your pension and use that to make a sound choice about when to retire and draw your pension. By getting this information, you might be able to spot opportunities to boost your pension pot and enhance your retirement income.
Investment choices for your retirement
What options do you have when it comes to investing the cash you’ve built up in a pension pot? It’s at this point that it pays to understand a range of different types of investments and the risks and benefits involved.
Investment funds either, as this guide notes, specialise in specific assets – such as shares or bonds in particular companies – or invest in a mix of different assets from government bonds to shares. The latter is usually preferable since it means that you are diversifying your investment and the success or otherwise of your fund isn’t reliant on one asset.
There’s an important trade-off in terms of risk and reward that you need to weigh up. Bonds and cash assets carry a lower risk than shares – but have less potential for performance. The greatest rewards are available with the greatest risk – but you have to be able to understand and appreciate the risk involved, and be comfortable with what you would do in a ‘worst case scenario’.
It is possible to obtain what’s called a ‘lifestyle fund’, in which your investments are automatically moved to less risky investments as you near retirement when you might be less willing to take a risk (or have the means to recover from a financial hit).
Those with larger pension pots might well have access to more assets using a self-invest personal pension (SIPP). Having a SIPP requires a decent level of knowledge about the market and investment types and it’s well worth taking financial advice from an expert to ensure you’re handling this in the best way possible.
Retirement investment – Key takeaways
So, in summary, you need to:
- Make sure you understand what pensions you have
- Plan well in advance to give yourself time to make a smart long term decision
- Ask your pensions providers what income your investment will provide
- Understand what investment choices, if any, your pensions require you to make
- Make a choice about the level of risk you are comfortable with
- Ask for advice if you are unsure about your pensions.