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10th October 2018
When it comes to ensuring your prosperity in retirement, Douglas Macnaught, Wealth Planning Adviser, gives us his 5 top tips on why it is important to invest in a pension and why setting goals for your financial planning is key.
1. Plan and Review
You should keep to your financial plan and adjust investments accordingly over time. Regular reviews should be undertaken, adjusting the asset allocation to make sure the portfolio stays on track to meet your goals and within the risk parameters you are comfortable with.
2. Diversify your portfolio
A common mistake that many people make is not diversifying their portfolio properly. Various asset classes behave differently and by spreading the investments across assets such as equities, property, bonds and others, you can benefit from changing investment cycles.
3. Don’t make knee-jerk reactions – think long term
Movement up and down in the markets is normal and it can be harmful to switch your investments too much, as well as costly. With any investment, there are no guarantees, however leaving your pension to grow in the long term means there’s more chance of recovering any losses along the way.
One of the biggest dilemmas some face is market timing. Jumping in and out of markets on a regular basis not only requires monitoring of daily events but also requires expertise to act on such events. It can be costly to move in our out of the market at the wrong time and it is important to stick to your long term goals. A fundamental principle of investing is that it is vital to be in “in the market”, rather than “timing the market”.
4. Review the date of your retirement
Some investment options will gradually move your pension savings into lower-risk investments as you get closer to retirement age. You could be moving into these investments at the wrong time if the correct retirement date is not set. For example, if you move into them too early, you could potentially miss out on investment returns that could increase the value of your pension. But if you move too late, you could be exposing your life savings to unnecessary risk.
5. Flexibility of your income
When you reach retirement, you could use an annuity which will guarantee your income for the rest of your life. The amount of income you’ll receive is based on the size of your pension and annuity rates at that time.
Or you may prefer a drawdown approach, where you retain the pension invested and draw income flexibly as and when required. The same investment principles as above apply when you are drawing pension benefits flexibly and it is important to continue planning and reviewing for the long term.
The content of this blog is for general information only and should not be considered advice. Pensions are not normally accessible until age 55. The value of investments can go down as well as up in value and you may get back less than you invested. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. Accessing pension benefits early may impact on levels of retirement income and is not suitable for everyone.
In order to make the most out of your retirement you first need to maximise your retirement income. What is the best way to do this? Read our factsheet to find out.
Reference – BL036 – Oct – 18
