Is your pension fit for retirement? Five things you need to know
Since Covid burst on to the scene the world has become a less certain place, especially when thinking about your retirement plans and it has never been more important to prepare for the unexpected.
Despite this, people continue to ignore something as significant as saving for retirement. Content to let their pension pot tick along, many are under the assumption that all is well, the fund is growing and there is nothing much to do except wait.
For many, the very idea of undertaking detailed financial planning or decision making can seem daunting. Easier to put it off, people would rather deal with it some other time. Anyway, what is there to deal with? Surely the pension is taking care of itself.
Your pension may indeed be ticking along, but it is far too important to leave to chance.
As we all live longer and fuller lives, retirement is not what it used to be – for some it is easing off and taking some well-deserved time off, whereas for others it can be a new adventure.
Whatever retirement means to you, with a little extra effort and attention now, your pension could deliver even more when you come to retire.
It is true that one-size-fits-all does not apply to retirement but by taking simple steps and making easy fixes you can ensure your fund is in peak condition.
1. Figure out how much you need as your starting point
For almost everyone we work with, whether you have a company pension scheme, a workplace pension, or a personal arrangement, our experience shows that the secret to a fulfilling retirement is planning early. Not necessarily saving, or sacrificing, or working harder – although of course, they come into it too – but thinking and planning ahead.
Our first question about your retirement is ‘How financially secure do you want to be when you retire? What is your retirement number, i.e. What level of assets do you need to accumulate over your working life to secure the level of retirement you want?’
This hypothetical figure is the starting point for nearly every conversation about retirement. It focuses the mind. If we work out that number first, we can then work from there.
2. Make sure your pension pot is working hard for you
Saving in your pension fund is the bare minimum – but on its own, it is not enough. You also need to invest your fund so that it generates the return you need.
A defensive approach to investing in cash and bonds may return 1% over the long term (and even less in the short term in the current period of low interest rates).
Following this investment approach, you would need a much larger fund than if you were to invest in a long-term portfolio, as investment growth can do the hard work for you.
Provided you have time on your side, investing in a more volatile portfolio can take advantage of the time on your side to ride any storms that the markets may bring.
Ensuring that your pension and investment approach is tailored to your personal circumstances, and built with your specific retirement objectives in mind, is a key component of an effective financial plan.
3. Will your pension match your retirement goals?
Have you saved enough to fund your retirement goals? Working with your Wealth Manager you can evaluate this and, if you have a shortfall, identify how you can plug the gap.
4. Do not lose track of your pension pots
Many of us have different pensions invested in different places. Not understanding, or worse, not paying attention to fees and charges, can have a significant impact on the future value of your pension pot(s).
Most pension arrangements charge an annual management fee, but it is vital that you also understand the costs associated with the specific fund(s) you choose. For example, commission, fund manager charges, bid/offer spreads and custody fees.
Your pension provider or Wealth Manager can provide you with a detailed breakdown of all costs associated with the operation and investment management of your pension(s) – all you have to do is ask.
5. Ensure you understand what you have and how it works
You are unique in terms of your circumstances, your resources, and how much you need to set aside to have a comfortable retirement.
However, all too often, a one size fits all investment approach is applied to pension savers. Even lifestyle funds, which aim to de-risk pension members as they approach retirement, can be far too generic. They make a general assumption that we all want the same things when we retire.
A more personalised approach can help you get to where you want to be with the level of risk that you are comfortable taking will ensure continuity of advice on an ongoing basis into retirement and beyond. So, what is the solution? Get the best advice of your life, for your life.
If any – or all – of this rings true, it is time for a thorough review of your retirement funding strategy. Getting expert advice is a good place to start.
At AAM, we understand that our clients are individuals, each with different financial goals. We do not do ‘one-size-fits- all’ pension plans because how much you need in retirement differs for everyone.
Your retirement number is entirely personal to you. That is why our dedicated Wealth Managers spend time getting a genuine understanding of your life and finding out what matters to you, so that we can deliver the results you are looking for.
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