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PLANNING FOR A COMFORTABLE RETIREMENT
by Sam Hulson of First Equitable
Are you on track to retire when you want to? Do you have enough
in your pension pot to retire comfortably? Whilst the definition
of a comfortable lifestyle will mean different things to different
people, the older we get, the more important it is to make
retirement planning a priority. The earlier this is addressed the
easier it will be to ensure you reach your goals.
There are many variables to consider, including the age that you
plan to retire; your life expectancy; your income requirements in
retirement; your expected investment returns; inflation; tax rates
and whether you qualify for the State Pension.
Given the number of variables, this part of the retirement planning
process is not always straightforward.
Can you answer the following questions?
•
When do I want to retire?
•
How much income do I want in retirement?
•
Do I have previous personal or company pension plans that
need reviewing?
•
Can I work part-time and take some of my pension?
•
How much will my State Pension be?
•
Where is my pension money invested, and is it growing?
•
Can I retire early?
MULTIPLE PENSIONS?
Nowadays, it’s common for many people to have accumulated an
array of different pension agreements throughout their working life.
By the time you have been working for a decade or two, you may
have accumulated multiple pension plans on your career journey.
If appropriate, it may be worth considering whether a pension
consolidation would be beneficial. This could provide you with
more clarity in relation to your overall pension savings and make it
easier to plan for your retirement. However, it’s important that you
know and compare the features and benefits of the different pension
agreements you are thinking of transferring. It is a complex decision
to work out whether you would be better or worse off combining
your pensions and you should seek always professional advice first.
REVIEW YOUR ASSET ALLOCATION
It is a good idea to review your asset allocation regularly. Typically,
the further you are from retirement the more exposure to growth
assets, such as equities, you will have. The most important thing
here is to ensure that your asset allocation matches your risk profile
and the amount of risk you are willing take. This becomes even
more important when you are getting closer to retirement.
As you move closer to retirement, and if appropriate to your
situation, it may be sensible to begin reducing your exposure to
higher-risk assets such as equities – especially if you are a more
cautious investor who doesn’t feel comfortable with fluctuating
investment values. If retirement is planned within 5 years or less,
you don’t want to be overexposed to the stock market, as there is less
time to recover from a major stock market correction. Conversely,
for investors who are comfortable with stock market risk, remaining
invested in equities is still likely to be the best solution; although
you may want to consider whether a switch of focus to income,
rather than growth, is more appropriate for your objectives.
In either case, moving away from an exposure to growth assets
entirely or too early can be very expensive. Unless your situation
is unusual, some retention of these growth assets is going to be
required during a retirement that could last more than 30 years.
It’s important to balance the need for liquidity and an exposure to
growth assets.
REVIEW YOUR PLANS ANNUALLY
As with any other aspect of your personal finances, it’s essential to
conduct regular reviews of your pension arrangements to ensure
that they fit best with your current situation. A regular review will
ensure healthy progression towards retirement by checking that you
are firmly on track with your retirement goals.
Retirement planning is a continual process, and the more often you
review your progress, the more prepared you’ll be for retirement
and the more in control you’ll feel. At a minimum, aim to review
your retirement planning at least once annually to ensure that
you’re on track to achieving your retirement goals.
CAN WE HELP?
Are you already saving into your pension or just getting started?
Whatever stage you’re at, we’ll give you a clear idea of how much
you will need to afford the lifestyle you want after you retire.
To find out more or to discuss your requirements, please contact
us. You can also email me at: [email protected]
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