Everyone is different. People have their own individual goals and aspirations, different hobbies and interests, and different dreams. Despite their differences, they all have something in common, the desire to be able to continue with the same standard of living, or an improved standard of living, when they retire.
According to a report by the Social Market Foundation on retirement, most people need an additional £250,000 if they wish to reach their ideal income. How are you going to find that sort of money, if you have left your planning too late.
There are a number of reasons for this:-
- Pension statements are mind-bogglingly complex, and the paperwork and the language used by pension companies can bring on a migraine. No wonder people find them impossible to understand and prefer to occupy themselves with other activities, such as planning their annual holidays.
- Many prefer more immediate satisfaction of their needs, and would rather not think about what may or may not be their plight in some years in the future.
- Most of us live in an optimistic bubble and simply do not believe in the necessity to make a big effort in sorting out matters to improve their financial future.
- The safe withdrawal rate (an estimate of what percentage you can draw on an annual basis from your pension has been reduced from 4% to 3%) , but that was before the latest shocking figures on inflation.
Only one-third of people who are getting close to retirement know how much they need to save to meet their target income.
The remainder will have to cope with a reduction in their lifestyle or be forced to downsize their property or access equity release.
What can you do to boost your pension and improve your financial position in retirement?
- Try to increase your contributions to pensions, particularly if you are a 40% taxpayer, and contribute enough to reduce your marginal tax rate from 40% to basic rate tax. (see my article for more information)
- Consider working past your planned retirement date, or working part-time for a number of years. (see our e-book)
- Compare the performance of the funds in your pension with other similar funds. in the same sector. Take global funds. As an example, there are 515 global funds. Out of those funds, only 64 managers are deemed to have added value and have been awarded Alpha status.
Over a 5-year period, the top performer gained 280.51% and the worst fund lost 10.35%, an astonishing difference of 290.86%. (see our e-book)
Source: FE Analytics correct as of July 2022.
Either do the research yourself or find a good independent financial adviser to carry out the work on your behalf.
Remember, past performance won’t necessarily be repeated in the future, but persistent poor performance invariably does.
- Get regular, ongoing advice on the best asset class to invest in. The name of this process is asset allocation. Carrying out research on finding the best pebble on the beach can be likened to choosing the best fund. Asset allocation is finding the best beach!
Will your pension and retirement provision be affected by the current geopolitical tensions in the world, energy costs, and rocketing inflation?
In the past, essential expenses were lower in retirement. For example, you will have paid off your mortgage and no longer need to travel to work. As a general guideline, you used to be able to rely on needing two-thirds of your income to support your standard of living in retirement.
That is no longer the case.
There is no room for complacency.
If your pension provider uses industry-standard model portfolios, you can anticipate future growth at a maximum of 4% per annum (based on a standard 60/40 portfolio).
If the latest assessment of inflation by Goldman Sachs of 22% per annum were to be realised, then this implies that your pension funds could lose the purchasing power of 18% per annum.
If your pension or associated investment funds are currently valued in excess of £500,000, we would be happy to provide you with a second opinion on your pension. To apply click HERE.
Disclaimer
A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).
The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.
The opinions formed by Ray Best are based on the latest information on markets, they are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.
You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.
UnaVida Wealth Management Ltd. is directly authorised and regulated by the Financial Conduct Authority (440577).
The value of an investment and the income from it could go down as well as up.
The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
