How to keep your pension on track in retirement
TRICIA PHILLIPS offers some ideas to make sure your money goes the distance once you put the daily grind of work behind you
MANY of us spend much of our working life climbing that hill. Heading, onwards and upwards, while enjoying life’s views and landmarks, to what we hope will be a comfortable retirement.
But like any climb, it’s the state you’re in when you reach the summit that will determine how well you cope with the descent.
Because navigating retirement is like a well-planned hike, the path uphill is only half the journey and often it’s the way down that proves the most treacherous part.
So you should plan your pension well and make sure you have all the right gear to weather any incoming storms that may lie ahead.
We asked Rob Gardner, from wealth management firm St James’s Place, to show the right financial retirement approach to the summit.
MAP YOUR ROUTE AND DURATION
WITH any hike, knowing where you are going, how you’ll get there, how long it will take and what obstacles may be in the way is crucial.
Your retirement is no different.
Rob says: “Just having a pot of money is not enough. You need to plan carefully to make sure it lasts the rest of your life ahead of you.
“Considering various scenarios and continuing to invest it wisely is key so your ‘pot’ keeps growing and you can live comfortably till your final days.”
Preparing for the worst-case scenario means not running out of money in retirement. And having some money left over to leave a legacy to your loved ones.
Most people underestimate how long they will live as a pensioner by 20%. That’s huge. If you live for 30 years in retirement, that’s six years without any cash. In fact, the average man runs out of money 10 years before he dies, and for women it’s 12.5 years.
If you’re in a couple, the chances of one of you living to 80 is more than 90%, so if you’re still married when you retire there’s a high chance you’ll need to plan for that.
Rob adds: “Then there’s inflation to factor in. Whatever you choose to buy today could potentially cost you double in 20 to 30 years’ time, so you need to plan and account for that too.
“In simple terms, if you split your pot of money equally over 30 years, then what you can buy and pay for in the last year of your retirement is going to be half what you could buy at the start.
“And that means a lot less comfortable living.”
PREPARE FOR ALL WEATHER
IN life, we don’t know what lies ahead of us. What started as an easy hike can become a risky and injury-prone scramble. What if dark rain clouds roll in and you’re caught short without the right boots and waterproof clothing?
Rob says: “The aim of the game is to prepare for all seasons.
“Sure, the family that arrives at the foot of Ben Nevis with no idea and no gear on a calm, sunny day, may be lucky and make it up and down unscathed. But then again, they might not.
“In retirement, it’s better to be a hiker in the know, who turns up with all the gear – prepared and equipped for the worst – even if you don’t end up needing it.”
Investing during retirement is a whole different ball game than when saving up for it.
Instead of investing into a pot ot increasing month by month or r yearly as you top it up, it’s now decreasing asing each month, year by year, as you ou take money out to support your ur lifestyle.
That’s the first challenge. Then there’s the sequence of returns to take into account – ie when exactly your investments deliver for you.
Rob adds: “When you’re young and saving for retirement, when and how you get your returns by 65 doesn’t really matter.
“So long as you hit your target, who cares if your money grew steadily each year or if you just had a fantastic final few years (although this can be emotionally taxing even for the most savvy investor).
“In retirement, that’s not the case. You need to make steady returns each year. For example: Gill and David.
“Gill experiences strong performance at the start followed by poor performance, while David, who retires later, experiences the same returns but in the opposite order.
“Gill can sustainably draw on her savings each month and not impact her pot. David, who gets poor returns followed by strong returns, will see
his pot halve in 10 years. “Just like the weather, investment markets cannot be controlled, but you can prepare for when the climate changes. “In a financial sense, this is investing into the right portfolio; a combination of funds that have been designed to mitigate these risks.”
SPEED OF DESCENT
YOU have your guide, you’ve developed your route and how long you think you’ll be hiking for – ie your financial plan and life expectancy estimation.
You’re also kitted up and prepared – and that tha means investing especially for ‘in ret retirement’. Now you need to work out o how best to descend the othe other side of the hill safely – ie ho how much to spend and when. Rob says: “Regularly checking your financial plan is important so you become more dynamic with your spending.
“In hiking terms, for an hour or two the weather g gods may have been smiling do down on you and so you’re able to see ahead and walk quick quicker without too much worry. But an h hour or so later, the skies may darken, v visibility is impaired and you need dt to slow down to avoid making a wrong step.
“In the same way, for some years the markets may be good to you. You may decide it’s OK to spend a little more than usual this year so you can treat yourself or your family.
“Some years you may need to pare back and spend less to level out your plan – and make sure you’ll continue to have the right amount of money to invest and generate income for you for the years to come.”
TAKE A GUIDE
CLIMBING with someone else – who has done the journey before or who is a guide – is a much better idea than going it alone.
Rob explains: “Just as you wouldn’t hike Ben Nevis for the first time on your own without a guide, so too navigating your later years also requires guidance.
“Speak to as many people as you can to get as much knowledge as you can.
“Working with a professional ‘guide’ means you have help growing your money, and knowing how much to spend and when to cut back, enabling you to enjoy retirement with peace of mind.
“But whatever you do, just ask someone – for example friends, family members, and even older people you spend time with in social settings.
“Ask for help, get more informed and the chances are you’ll be better off if you do.”
LEAVE IT AS YOU WISH TO FIND IT
FINALLY, like any good hiker, being environmentally responsible is a must. Rob says: “Littering on your way up or down a big hill or mountain is a real no-no.
“We want to leave these walks and trails in pristine condition for future generations to enjoy, just as we have.
“How and where we invest our money has a huge impact on the future of the environment too, more so than not using plastic bags or recycling our rubbish.
“Once you’re confident with your plan, you might like to ask your adviser or fund manager how environmentally friendly your investments are.
“Are you growing your money by investing in things that will have a good or bad impact on the planet?
“This will give you peace of mind. You’ll feel you’re leaving the planet in a condition that is safe and suitable for your children, and your children’s children, to live in.”