Investors don’t want to find themselves unable to meet their financial needs when they retire. And not everyone is able to start planning or saving early, as some investors may delay retirement planning until later in life. Other investors may have been saving for retirement for years, but are unsure or unaware of additional considerations to keep in mind as they get closer to retirement age. Your retirement planning decisions today may be critical to meeting your retirement goals no matter where you are in the process.
If you have control over investment decisions in any of your pensions or investment accounts, you likely need to decide how to allocate and invest those assets. Some investors in their 50s may have preconceived ideas on what assets and level of risk are best for their situation. Most people would benefit from guidance on how much risk to take with their investments. You may have encountered advice that recommends a certain percentage of your portfolio to invest in equities or fixed interest securities based on your age or another factor. However, generic recommendations do not take into account your individual circumstances, personal long-term goals and other important factors. It’s possible that some investments may not be appropriate from a growth or risk perspective to support your financial needs after you retire.
Consider that you could live longer than you expect. Given the current pace of medical advancements, your current lifespan projections could underestimate how long you will actually live. If your lifespan is longer than you initially assume, your portfolio may need to fund your retirement for a longer time period. And if you have a younger spouse, you likely have to consider a longer potential time horizon than your own lifespan. A longer than expected retirement may mean you need a larger retirement fund to meet your needs.
Another reason you may need to plan for your retirement is due to the effect of inflation on your money’s purchasing power—how much your money can afford. Inflation has averaged about 4% a year since 1915.[i] If this rate were to continue, £50,000 of expenditure now would cost the equivalent of almost £115,000 in 20 years and about £175,000 in 30 years just to maintain the same purchasing power. Some investors may forget to account for the potential long-term effects of inflation on their ability to afford goods and services in the future. Whilst current investments or income sources may seem to cover your needs now, think beyond just the near term. Will your current planned income sources and assets be sufficient when considering the long-term effects of inflation?
Retirement goals vary. Some retirees may aim to maintain or improve lifestyle, while others may be unconcerned with the amount of money left at the end of their retirement. This will be an important factor to consider as part of your retirement planning. If you need long-term growth to meet your essential retirement needs, you may need to evaluate which assets’ growth and risk characteristics are appropriate to meet those needs. While market volatility can have an impact on your portfolio, it is not always the only risk involved in retirement planning. Investing in assets that are not appropriate for your retirement needs is another risk to consider.
Your 50s may be a time of higher earnings than earlier in your career. This can present you with a prime opportunity to increase your retirement contributions. Before making adjustments, first determine how much money you currently have in retirement accounts, savings or expected pensions. Are you currently on track to meet your expected retirement income needs? If not, or if you want to give your savings an extra boost, there are a number of ways to adjust your contributions to meet your goals.
You may wish to ramp up pension savings—potentially in a personal pension or a workplace pension if possible. If you currently have a personal pension, you may consider increasing your contributions up to the maximum amount. If you do not currently have a personal pension, you may consider opening one to increase retirement savings. If your workplace pension is a defined contribution plan, you may have an opportunity to increase your contributions.
Another consideration you may encounter during retirement planning is when to begin taking pension withdrawals. You may be eligible to withdraw from some pensions starting at age 55. However, early withdrawals could alter your pension benefit or tax situation in some cases. If you do plan to begin taking pension withdrawals in your 50s, consider evaluating your income needs and how taking early pension benefits could affect that income over the longer term.
Retirement planning at 50 can be tricky. You may have to face difficult decisions, but you don’t have to do it alone. Fisher Investments UK and Fisher Investments may be able to help with your retirement planning no matter where you are in the process. Call us today to speak with one of our representatives or download one of our educational investing guides to learn more.
[i] Source: Global Financial Data, as of 01/11/2017. Based on UK Retail Price Index in GBP from 1915 to 2016.