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,