Saving and Investing in Retirement


Retirement is an exciting time—you can explore new hobbies, travel, spend more time with loved ones or just relax. Although many investors have some type of retirement savings—such as employer-sponsored retirement plans, individual savings accounts (ISAs) or pensions—not everyone thinks about investing during retirement and creating an ongoing retirement plan.

You may need to continue investing for decades into retirement to make sure you are able to live comfortably and meet your long-term retirement goals. Investors who have entered retirement often assume they can relax—as they would like to! However, for many investors, investing during retirement is critical to their ability to reach their long-term goals.

How Should You Invest?

Running out of money in retirement is a common retiree fear. After spending nearly your entire life saving for retirement, it’s almost second nature to put away any excess money. Whilst not every investor requires investment growth throughout their lifetime, depending on their individual circumstances, others may need their savings may to work for them in retirement.

Depending on your situation, investing in retirement may be able to help you meet your long-term retirement goals. A savings account is a great tool for money that you may need to get access to on short notice. Unexpected medical costs, home repairs or even taking a  vacation are all examples of potential cases where you may benefit from having some cash on hand in retirement. However, if your investment goals require long-term growth, holding too much cash could mean you need to re-evaluate your priorities or risk running out of money in retirement.

The Risks Associated With Holding Cash

It may seem logical for some investors shift their investments into lower-volatility investments in retirement. But simply being retired does not automatically mean you have met your longer-term financial needs and can stop investing. Once you retire, you may need to continue investing for decades to aim to maintain your current lifestyle or meet your retirement income needs.

Investors who choose to move their money into a savings account should consider some important factors, including:

Inflation: Don’t underestimate inflation’s impact. It decreases purchasing power—your money’s ability to purchase goods and services—over time and can diminish real savings and investment returns. You should define your growth objectives and how much money you plan to have in your portfolio at the end of your investment time horizon. Then you’ll need to make sure your investment strategy accounts for the effects of inflation.

For example, if your portfolio grows 5% annually and inflation is 4%, you are only getting a 1% real annual return (before taxes). Your need for portfolio growth may affect your preferred exposure to volatility, which you may still need to counter the ongoing cost of inflation.

Investment Time Horizon: Investment time horizon is how long you need your assets to last. As medical science and overall living standards have advanced, life expectancy has increased. People are living longer and longer—and that means a potentially longer retirement than you expect.

Unfortunately, some investors underestimate how long they will live, potentially increasing their risk of depleting their retirement funds too early. Your age at retirement is less important than how long you need your money to last. It is more important to determine your investment time horizon. This can include not only your life expectancy, but also the expected life spans of your spouse and anyone else who may be dependent on your retirement funds.

Two Common Mistakes in Retirement Investing

We often find that investors make decisions that may not match their situations and needs. Too often, these mistakes are driven by industry standards or myths that don’t take into account your personal factors. Here are two common mistakes we’ve seen.

Not Understanding the Risk-Return Tradeoff. Factors such as risk tolerance are important, but putting too much of an emphasis on risk tolerance may, in some cases, limit your ability to meet your needs in retirement. Sometimes risk tolerance and financial needs are conflicting. When there is a mismatch in risk tolerance and the return you may require to meet your needs, seeking the help of an adviser to discuss the risk return trade-off can help you understand what is at stake.

Focusing Too Heavily on Your Age Alone. You may want to focus on generating an income, growing your investments or both. Your specific situation, investment time horizon, cash flow needs and financial goals will affect the asset allocation needed to achieve your financial goals. If you are a retiree using your portfolio as a source of income to meet your expenses, the asset classes you invest in should hinge on your individual goals and situation, not just your age. Age is just one consideration, and if you have a secondary objective—like leaving funds to your spouse or heirs—age may be less relevant.

How Will Retirement Affect Your Expenses?

Although some aspects of retirement expenses may be difficult to predict, others may be easier to take into account. It’s a good idea to evaluate your potential expenses to get an idea of where you might find savings, and where you might find some unexpected increases in spending.

To start, non-discretionary expenditures are those required for daily life and you generally can’t avoid them. You don’t have much control over them. These costs normally include:

  • Living expenses: Living expenses include groceries, petrol and utilities. These costs have the potential to change once you retire, but you should be able to estimate whether you are saving more or spending more depending on your lifestyle choices. Whether you plan to stay in your home or relocate affects these expenses. If you plan to stay in your pre-retirement home, you probably have a good idea of what these expenses will be. If you plan to move to a different living situation, you may save more or spend more on this expense during retirement.
  • Debt: Do you carry any credit card debt? What about a mortgage or car loan? You should account for all your debts when you plan out your retirement expenses.
  • Taxes: You may find savings in this category if you are no longer working. However, you may have to pay some income tax as well as capital gains taxes, so it is important to know how income and capital gains taxes will affect you.

Discretionary expenditures are nonessential costs, but may be an important part of enjoying your retirement. However, if you find that you may need to budget or cut costs, you may look to lessen these costs first. Discretionary expenditures can include:

  • Travel: Many people look forward to travel in their retirement years. They envision making that dream trip, taking long and luxurious vacations or visiting grandkids more often. Depending on how often you travelled in your pre-retirement life, you may see a change in spending in this category after retirement.
  • Hobbies: If you have additional time to spend on hobbies or newly found hobbies, you may find that you end up spending more time and money on them during retirement.
  • Luxuries: Who doesn’t like to indulge in something luxurious on occasion? Retirement can be a great time to do that if you have the means. Will you be dining out, going to the theatre or enjoying fine wines? Whatever your idea of luxury is, you will need to consider the costs to stay in line with your plans.
  • Children or grandchildren: This category includes some of the expenses already mentioned. Will you be travelling more often to see family in retirement, or gifting money to your children or grandchildren? If family members are a focus during retirement, your budget will likely fluctuate depending on those costs.

These are just a few important considerations when saving and investing for retirement, and it can be difficult to plan sufficiently on your own.

Contact Fisher Investments UK Today

To learn more about Fisher Investments UK or our views on the best way to allocate your retirement savings, contact us to request an appointment. You can also download our educational investing guides to learn more about proper goal setting, retirement planning and much more.

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.