Pot luck How to boost your pension savings

Buy an annuity

One way to insure yourself against living “too long” would be to buy an annuity – a guaranteed income for life – either at retirement age or later, as it takes away the risk from the individual.

“In the past, people were largely forced to buy annuities with all of their pension pot at retirement, and that may not have been the best answer,” said Steve Webb, former pensions minister and partner at consultancy LCP.

“But using some of your pot for an annuity in later retirement may be well worth considering.”

Work a little longer

Another possibility, according to Chris Flower, financial planner at Quilter, could simply be to work just a couple years longer after you reach retirement age. “Even if you can claim your state pension, does it mean you should immediately access your private pension? Not necessarily. Working even a few years more can have a notable impact on your retirement pot’s growth and the kind of income you can expect to have,” he said.

“It’s essential to have a realistic projection of your monthly and yearly expenses, including contingencies for unexpected costs.”

Watch the market

While it’s hard to predict, the state of the economy when you retire can also affect your pension’s buying power. Inflation, interest rates and market conditions all play a part. If you’re retiring in a period of economic downturn, it may be wise to be more conservative with withdrawals, at least initially, Flower suggests.

“For years, the ‘4 per cent rule’ has been a figure cited by research in the US as something that is sustainable,” he said.

“It suggests that if you withdraw 4 per cent of your pension pot in the first year and adjust this amount for inflation annually, your savings should last for 30 years.”

However, like all rules of thumb, it’s based on certain assumptions and needs to be considered alongside someone’s state of health and propensity to spend, which is likely to be higher for younger clients and lower for older clients.