Trustnet Magazine Issue 21 September 2016 | Page 4

YOUR PORTFOLIO

THE END OF
THE RAINBOW
You may have done all the hard work by the point you retire, but you
can’t switch off if you want to get the most from your pot of gold.
Pádraig Floyd considers your options

S

AVING FOR
RETIREMENT IS A
LONG AND WINDING
ROAD, but the chances
are that even if you
have religiously put money away
over the last two or three decades,
you will have given little thought
about what to do with it at the point
you stop working.
If this sounds familiar, don’t
worry, you aren’t alone – it tends
to creep up on people very quickly.
However, while many investors
plan their saving carefully, they
tend to want to make immediate
decisions – and this isn’t advisable
when there are many factors to
consider above and beyond the
level of income you want.
These include the degree to
which you wish to remain invested
in markets, the amount of risk you
are prepared to take, any loans or
debts, any bequests you may wish
to make and whether you have any
healthcare issues. You should take
every one of these into account
before you build an investment
portfolio for retirement, says Lee
Robertson, a chartered wealth
manager and chief executive of
Investment Quorum.
2

It is also important to consider
all opportunities, including ISAs
and annuities, even if they are
ultimately rejected.
“Clients will often live longer
than they think, so investment
horizons and levels of risk are
important parts of the planning
conversation,” he said. “There is
no point taking risk to generate
returns you don’t need.”
It is essential to look at your
entire portfolio, even if you are
only thinking about converting
your pension fund. Many clients
end up sitting on tax-inefficient
investments that generate returns
they no longer need. This may
push their portfolio higher up
the risk spectrum than may be
necessary, while those returns
are being swallowed up in fees
or tax liabilities.

ANNUITIES CAN MAKE SENSE
And these are the lucky ones. In
reality, most people want and
need some security in retirement.
The current generation of babyboomers can rely on some final
salary pension income added
to their state pension to provide
this buffer.

As final salary schemes
eventually become extinct,
however, people will become
more reliant upon their defined
contribution (DC) pensions. Tom
McPhail, head of pensions research
at Hargreaves Lansdown, says that
aside from the very wealthy, many
people are uncomfortable about
having all their income housed in
such risk-based products.
Some of these will mix and
match an annuity with drawdown
to provide security and flexibility.
The annuity will offer some
inflation-proofing and can
deliver a natural yield of around
3.5 per cent. This doesn’t sound
so bad in the current economic
environment, until you realise we
have come to expect something
closer to double that.
There is also a need to hold
some cash in reserve, even if at
this moment in time, it will not
be rewarded with any interest.
Whatever balance you choose to
strike, it is vital you do not look
upon it as a one-time, set and
forget process.
“Whether you are doing this
yourself or paying someone to
look after your money for you,
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