One of the most common reasons for seeking financial advice is to plan your retirement.
This is understandable - it’s arguably the most important financial decision you’ll ever make, and the earlier you start planning the greater chance of achieving your goals.
Below I describe how I approach advising my clients on their retirement strategy, from building a sufficient pot, to the decisions taken as retirement draws closer.
When & where do you want to retire and what will retirement look like?
We always tend to start with the end in mind. It’s important for us to establish a clear understanding of goals and aspirations.
During their working lives, many clients simply focus on accumulating assets. But they often haven’t given enough thought as to when and where they might retire and how these assets will be best used to support them once they’ve stopped working.
With this in mind, the first step is sketching out what your ‘dream’ retirement looks like. When do you want to retire, where will that be, and how much income will you need to fund the lifestyle you want?
Are you saving enough to meet your goals?
Once we have a date and a figure in mind we can work backwards to assess whether you’re on track.
We’ll look at your existing pensions and other investments, and then make realistic assumptions about growth rates to make some projections and identify any shortfalls.
If there’s a shortfall, we work out what additional contributions are needed to help plug the gap. For many this will involve putting more into pensions and other investments while they’re still working. Of course, you can make these projections yourself, and we have numerous tools which can help. Our tools and calculators can provide you with useful information and help but remember things change and it is important to constantly review your plans every few years.
If you’d like a little more help, financial advice might be right for you. I work with clients like this every day and help them budget and prioritise to move them closer to their dream retirement.
Are your investments working hard enough?
Another important factor is investment performance. As such, part of our process is constructing a portfolio of investments which is right for you.
This involves striking the right balance between taking a level of risk you feel comfortable with, while investing in areas with sufficient growth potential to achieve your goals. Costs can have a significant impact on investment performance, an adviser can ensure that you are not paying too much for policies or services that you neither need, want nor value.
The Importance of regular reviews
This type of planning and the illustrations used with it are estimates. Naturally there are no guarantees - markets don’t always perform as we expect. And tax rules are constantly changing, especially when it comes to pensions.
For this reason reviewing your plans regularly is crucial, and should be conducted at key points relative to your chosen retirement date. For example I would usually suggest a review five years from retirement as a minimum.
Our service is designed to suit the different types of clients we have and the cost and service is specific for each client. Some clients want one off advice and want to avoid paying for advice year on year – safe in the knowledge that they can take ad-hoc reviews efficiently at a time of their choosing.
Pensions and property are the cornerstone, but look elsewhere too!
Pensions in certain countries can offer fantastic tax advantages, particularly for higher rate taxpayers or those within employer schemes. Pensions are a cornerstone of retirement planning and are likely to remain so. Though do remember benefits do change and are dependent on personal circumstances and if you retire in another country to where you have worked your pension benefits maybe reduced.
Property is also a favourite investment for many as it offers not only potential capital gains but can also offer a rental income as well. Certain markets have performed better than others over time and if you can also borrow against the property at low interest rates. This can make for a very successful long term investment.
How will you use your pension at retirement?
Towards the later years of working life, your options at retirement could impact on your investment strategy.
If you’re looking for a secure income for life, you may like to consider an annuity, you may also wish to choose less volatile investments in the run up to retirement. This can help reduce the risk of a sharp market fall reducing the income you’re able to achieve.
But if you’re planning to keep your investments and pension invested, your timeframe is extended, and reducing risk can be less of an issue as you slowly drawdown income from these assets.