Investors often search for an easy solution to how they will meet all their goals in retirement. However, there is no perfect answer. Each individual’s approach will vary based on their individual financial goals and situation, which may change as time goes on. Whilst some investors may rely more heavily on their investment portfolio to provide ongoing cash flow, others may have to rely solely on a pension for retirement income.
To find the right solution for you, begin by determining your long-term financial needs and estimating what your cash flow requirements will be. In addition to covering your retirement costs your goals may include growing your assets as much as possible or reaching some pre-determined number you wish to pass on to your beneficiaries. Some investors even plan on spending their entire savings throughout retirement, but beware, without sufficient planning and action, you may run the risk of running out of money in your lifetime. Once you’ve determined your long-term investing goals, you can move on to consider how you might achieve those goals.
When reviewing your retirement needs it is often advisable to consult with a financial professional. Making investment decisions can be difficult in today’s world of 24-hour news and intense media chatter. Who should you believe? Portfolio management can be a full-time job, and many people are simply too busy to consistently monitor all the information surrounding financial markets. Many retirees would rather be relaxing or spending time with family than monitoring their investment portfolio. Further, some retail investors have trouble picking an investment strategy and managing it in line with their changing needs. Some may place reactionary or emotional trades that could hurt their long-term portfolio returns. For these investors, the financial advice that a trusted adviser can provide may increase their chances of meeting those long-term goals.
One mistake some investors might make is underestimating their investment time horizon—how long they may need their portfolio to last. Not planning for a long enough investment time horizon could leave you in a dangerous position if you end up needing your money to last for longer than you’d originally expected. Investors sometimes plan for their average life expectancy, neglecting that these projections are just averages and they could live longer than the average. Planning for a longer investment time horizon may help you avoid difficult situations later in life.
Before searching for a retirement solution, you should also consider if you may need your money to last beyond your own life. Will your spouse rely on your investment portfolio for income? Do you have other dependants who will be reliant on your financial support when you’re gone? Depending on your answers to these questions, your investment time horizon could be much longer than your own life expectancy.
Many people overlook inflation in retirement planning, which could be costly. Over time, inflation can decrease your future purchasing power—how much you can buy with your money—which may mean that investors have to plan for more investment growth to counter rising prices. Accounting for inflation in your retirement plan can be the difference between retiring comfortably and running out of money during your lifetime.
If you decide to hire a financial adviser, you should understand the importance of developing a cohesive financial plan. Whilst diversification amongst asset classes may make sense for reducing your portfolio’s volatility, diversification amongst fund managers could create other issues. Multiple managers could mean multiple strategies, which could create inefficiencies. If one manager increases exposure to European equities and the other manger decreases exposure, your overall portfolio asset allocation remains neutral while you incur the trading costs of both.
Your financial professional should have a clear picture of your entire financial situation in order to provide you with an optimal investment strategy. Ensuring that all of your finances are working together can get you one step closer towards reaching all of your long-term investment goals.
Whilst there are many potential retirement solutions available, you don’t have to approach retirement alone. Contact Fisher Investments UK to learn more about our retirement planning services or download one of our educational guides to learn 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.
