Late Retirement Planning

Most people hope to retire, but many are late—potentially age 50 or 60—before they start planning or building up their retirement savings. Although you may not be ready to retire just yet, you may be nearer than you think and planning late is better than never. As you approach retirement, you may still face many life changes. But these changes needn’t reduce your quality of living if you’ve done enough saving and planning. As you approach retirement, you can determine your required retirement savings, decide when to start taking pension withdrawals and identify an appropriate long-term investment strategy. This article provides helpful tips, suggestions and advice on how to navigate these important retirement-planning decisions.

Pension Considerations

Somewhat like Social Security in the United States, your country may offer some kind of State Pension, which may be a welcome source of income during retirement. However, you may need more income to make sure you can maintain your quality of life in retirement, and a diversified investment portfolio can an extremely helpful and potentially flexible source of income. Your pension payments may vary depending on the pension type and other circumstances. Some factors that can influence your pension payments are:

• Your age
• Your final salary
• When you decide to begin receiving payments
• If and how long you lived in a country
• How much you contributed to each scheme

Keep in mind, these are just a few considerations and your pension withdrawals will vary depending on your scheme and many other factors. To better understand your plan, it may be best to inquire with your provider.

When Should You Start Receiving Payments?

Generally, if you are able to delay taking your pension withdrawals, you may be able to increase the amount you can withdraw in the future. Consider the following:

• Taking withdrawals early can permanently reduce your ongoing pension payments.
• If your life expectancy is short, it may be beneficial to start receiving benefits as soon as you are able.
• Depending on the pension scheme, a surviving spouse may be eligible to continue receiving his or her spouse’s pension payments.

Do You Have Enough Retirement Savings?

You can answer this question if you know how much income or retirement savings you will need to cover your expenses after you retire. To get a better sense of your projected income needs, you can consider two categories of expenses:

• Non-discretionary spending for things you will absolutely need.
• Discretionary spending for things you may want but not necessarily need.

Non-Discretionary Spending

• Living expenses: Day-to-day, how much money might it cost to maintain your lifestyle? Think of everything from groceries to gas to the heating bill.
• Debt: You may have credit card debt, a mortgage or car loans. Even though smaller debts or credit cards may seem less important, you should account for everything you owe when mapping out your expenses.
• Taxes: Taxes may be lower in retirement, but it is a good idea to set aside money to settle your tax bill at the end of the year.

Discretionary Spending

• Travel: Many people look forward to travel after they retire. If you have been dreaming about a trip for years, now could be the time to budget for one.
• Hobbies: Retirement is a great time to revisit old hobbies or pick up new ones. Ready to finally master fly fishing or finish researching your family history? Hobbies frequently incur some costs.
• Luxuries: This is subject to your own budget and definition of luxury, but you’ll likely need to factor non-essential purchases into your expenses.
• Children and grandchildren: If you believe you’ll need a generous budget to make children and grandchildren a focus in your retirement, you’ll have to think about how much cash flow you’ll need to support that.

Other Income and Opportunities

As you approach or enter retirement, you may start thinking about the most appropriate time to begin taking withdrawals from your investment accounts or retirement plans. If you have any tax-advantaged accounts that enable you to take tax-free withdrawals—such as some individual retirement arrangements (IRAs) in the US or Individual Savings Accounts (ISAs) in the UK—retirement may be an optimal time to take some of that money. Along with accessing some of these savings, you may also have several other opportunities, including the freedom to explore new investment options.

During your working years, your investment opportunities may have been limited to the mutual funds in the retirement plan offered by your scheme. Such schemes aren’t necessarily tailored to your individual financial needs or goals. But taking lump-sum withdrawals or other actions may provide more flexibility to invest in assets that could help you personalize your portfolio to your goals and needs. Individual circumstances matter when evaluating whether to move money from retirement plans or pension schemes.

Now May Not be the Time to Get Too Conservative

Many investors believe retirement should mark a change in investment goals and overall risk tolerance. You may be more interested in preserving your wealth at this time. In a low interest rate environment, you may lean toward bonds and fixed-income instruments rather than seeking growth through individual equities. In this case, you still have to consider inflation’s effect on the wealth you are trying to preserve.

Inflation can be insidious. How insidious? It can wear away at your long-term returns and if you’re investing in “safe,” low-yielding assets, inflation can negate some or most of your potential income at times. So if you require long-term investment growth, you may need to rethink this urge to invest conservatively upon retiring. A good way to outpace inflation is to make sure your portfolio maintains steady growth which equals or exceeds the rate of inflation. This could mean maintaining sufficient exposure to the equities and other high-growth investments. For those planning to collect an income stream from investment accounts, we believe equity market exposure can help ensure sufficient growth to keep up with withdrawals and inflation, and also help avoid account depletion. However, what’s right for you depends on your individual situation, pension pot size, goals, income needs and more. It may be best to speak with an adviser who can analyse your personal situation to provide personalized advice.

If your investments are too conservative before retirement, you may expose yourself to a huge risk in retirement: running out of money.

Don’t Underestimate Your Investment Time Horizon

Investors often miscalculate or underestimate their investment time horizons—how long they need their portfolios to last. Some rely on life expectancy tables, which are only simple averages. Others may forget their investment time horizon can extend well beyond their lifetime.

Let’s consider the first point on life expectancy versus lifespan. People are generally living longer, due to medical advances and other factors. Depending on your family history and your spouse’s age, your investment time horizon could be much longer than you expect. If you underestimate how long you need your money to last, and if you get too conservative at this stage of your investing, you could find yourself going back to work when you should be enjoying your retirement.

Follow the Right Steps

Investing and retirement planning can be complicated. You’ll likely want to think carefully about your anticipated expenses in retirement as well as your sources of retirement income. Deciding when to start taking pension withdrawals is another important decision. Each investor is unique and there is no one right solution. Our qualified professionals recognize this, and they are ready to help you better understand your options and plan for your future. To learn more, give us a call or download one of our educational retirement planning guides as the first of our ongoing insights.