You’ve probably worked hard and have your mind set on a restful and enjoyable retirement. You’ve saved and planned for it but, just when it’s time to put things in place…BANG… it can all go wrong.
It doesn’t have to be that way but we come across many people who simply aren’t aware of some (or more) of the risks that await them and which could catch them out if they don’t plan sensibly.
Let’s look at some of the risks you MUST be aware of if you’re going to have a stress-free retirement.
Too many people come to us with the view that performance is king. ‘I want to get as much as possible’ or ‘I want as much money as I can get from my pensions and investments’. But what does this actually mean?
Our belief (which has been borne out of decades of research) is that there are no free lunches when it comes to investing. The returns you get are linked to the risks you take. Sounds simple but not everyone gets it. The bigger the risks you take, the bigger the potential returns BUT, conversely, the bigger the potential losses.
What you NEED when you retire and how much you can AFFORD to lose are vital components and too few people take this in to account. You might WANT the big hitting returns but are you willing (and able) to take the corresponding losses that could happen? You need to decide.
The markets have done well over recent years, but bubbles burst. You may, somewhat justifiably, have been lulled in to a false sense of security where you think your pension and investments will carry on growing but, the chances are, there will also be falls. Are your retirement plans ready and able to handle things should markets turn south?
We believe in balance, always balance. Too many clients we see come to us with investments that have too much exposure to, say, stocks and shares and too little exposure to safer things like bonds and cash. Bonds and cash might sound boring, but these keep cautious people sane when stocks and shares don’t do what they’re supposed to.
Find out where your money is invested, and I don’t mean which pension company or financial product. I mean find out what types of investments you’re in. If they’re anything like a lot of people we come across, you might be in for a surprise.
Is This All a Bit Taxing?
You might have relatively large pension benefits. By ‘relatively large’, I mean £1m or more (called the Lifetime Allowance). Actually, there are more people than you think in this position. Do you know that there could be a significant tax charge as a result?
I urge you to make sure there are no nasty surprises on this one because HMRC hath no mercy on the pensioner when it comes to exceeding the Lifetime Allowance. Get things right on tax, well in advance so you can plan.
There are plenty of other legitimate tax ‘wins’, but I don’t want this article to be too dry. Suffice to say, look in to them, be aware of them and, if you can, DO SOMETHING ABOUT THEM!
Are We ‘Inflating’ the Issue?
I don’t think so. You might be familiar with a chap called Albert Einstein? Well, he had something profound to say on this subject “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
You might be retired for a very long time, I sincerely hope you are. That said, inflation can be the silent enemy when it comes to retirement planning.
Left unchecked, it can erode your capital making things harder and harder for you to cope. In a nutshell, inflation means your money will be worth less in the future than it is now.
Having a sensible, inflation-matching (or beating) strategy with your retirement capital is another key component of a good retirement strategy. Don’t leave things to chance. Face inflation head on.
I hope you’re not, but you can be forgiven for being so. On top of the risks I’ve outlined, there’s also the issue of how you actually fund your retirement. What financial products are most suitable for you. Tricky stuff and a bit of a maze if you’re not on your game.
I said in a previous blog that retirement is a process and not an event. I truly believe this and, with this in mind, it’s important to get on the right track as soon as you can to reduce the risk of your retirement being anything less than amazing!