Defining Investment Goals for Retirement


The first step in formulating a retirement plan is to consider your investment goals. Many investors save money throughout their entire working lifetime but don’t actually know what they will need their money to do for them once they retire. By asking the important financial questions about your desired retirement lifestyle and savings, you can articulate your goals and work out a goal-based investing strategy to get there.

Whether you have pensions, investments, savings or property investments, seeking advice from a trusted financial adviser can help you understand how you may need your portfolio to work for you when you reach retirement age.

What do you consider your top priority in retirement?  Your retirement goals should be determined by you, your desired lifestyle, potential cash flows and more. From our experiences in counselling investors, you can spend your retirement years in many different ways. We have observed that investors often have one of the following retirement goals:

  • Avoid running out of money
  • Maintain or improve lifestyle
  • Increase wealth
  • Spend everything

Before focusing on anything else, figure out what is most important to you for retirement. It’s hard to arrive at your retirement goals without knowing what is most important to you.

Is Income a Priority?

Have you determined how you plan to take cash flows in retirement? If you haven’t, you should determine how you plan to derive an income from your current investments. How much are you likely to receive in pension payments? Do you have any property investments to supplement your pension?  Some investors are simply looking to maintain their current lifestyle. You should consider how much income you might require on an annual basis in order to reach your goals before determining how much growth you will need.

While you may have a pension, remember that it may not adequately meet all your retirement spending needs. If you want to maintain your current lifestyle in retirement, you need to determine how long your current savings will last. You can calculate the difference between your total pension income and your total expenses. If this number is negative, you may require some form of cash flow from your investment portfolio to cover the remainder of expenses.

You should consider how you plan to receive an income and cash flows in retirement. A fixed interest coupon (also known as bond coupon) is one of the more common income sources for investors, but with their popularity comes misconception. While fixed interest securities are known for their lower short-term volatility when compared with equities, with this lower short-term volatility comes potentially lower long-term returns.* As a long-term investor, investing conservatively could mean not achieving the long-term portfolio growth needed to meet your income needs.

We believe asset allocation is the most important factor for determining your expected returns. Regardless if you hold equities, fixed interest, mutual funds, exchange-traded funds or other securities, you should assess if those securities are right for your personal situation and long-term goals. If you require long-term portfolio growth and cash flows, you may need equity exposure to keep up with your withdrawals. We believe investors should not withdraw too much of their portfolio’s value on an annual basis to avoid depleting assets. The more you withdraw, the lower the chances are of your money lasting the entirety of your investment time horizon. That’s why it can be helpful to seek an adviser to help you plan for your future cash flow needs.

Do you need growth or preservation?

Many investors' objectives will boil down to one of two goals: growing their money or preserving it. How much you plan on withdrawing will likely have a direct relation to your required long-term portfolio growth. A common objective we have seen from those nearing retirement is shifting focus from growing their portfolio to preserving it. While for some this might make sense, this exposes investors to the risk of running out of money if their portfolio growth requirements are insufficient.

Many investors will need to capture long-term portfolio growth to at least some degree. How much growth you will need to meet your goals will depend on the value of your assets, your objectives, your lifestyle needs and, of course, your investment time horizon—how long you will need your money to last.

We believe pure capital preservation is rarely a good long-term investment plan for individuals. Focusing too heavily on preserving your money may result in the loss of purchasing power over time, as inflation gradually erodes the value of money over time. It is also important not to make the mistake of thinking you can withdraw as much as the average annual return of any asset class. This approach can diminish your principal as returns vary: the actual return in any given year may be above or below the average.

Lastly, it can be tempting to try to find a strategy providing both growth and preservation. However, in reality, these are two conflicting goals and any financial adviser or wealth manager who says they can achieve both should be questioned. Investing involves the risk of loss. While investing for capital preservation may involve less volatility, it also may reduce your portfolio growth potential.

Do you plan to leave a legacy?

Some investors plan to support a spouse or dependant or leave money to an organisation after they pass away. If you have legacy plans like these, you may want to account for them when formulating your long-term investing strategy.

Leaving a legacy may require a higher level of portfolio growth in order to be able to pass on the amount you aim to provide. Trying to achieve long-term investment growth on your own can be difficult, and you may benefit from working with an investment professional to create a plan to help you reach your goals.

Contact Fisher Investments UK today

We are dedicated to educating investors, and we may be able to help you define and achieve your investing goals. Fisher Investments UK has helped investors define and reach their investment goals for years. Contact us today to learn more about your investment options and to find out if we can help you determine your investing goals. Alternatively, our educational guides can give you more insight into how to invest for your long-term goals.

*Source: Global Financial Data, Inc (GFD). Average rate of return from 01/01/1926 through 31/12/2017. Equity return based on GFD’s World Return Index in GBP. The World Return Index is based upon GFD calculations of total returns before 1970. These are estimates by GFD to calculate the values of the World Index before 1970 and are not official values. GFD used specified weightings to calculate total returns for the World Index through 1969 and official daily data from 1970 on. Fixed Income return based on GFD’s GFDatabase World Government Bond GDP-weighted Return Index, converted to GB. *Standard Deviation represents the degree of fluctuations in the historical returns. The risk measure is applied to 5- and 20-year annualised returns in the above charts.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.