Most people can expect more than 20 years of retirement nowadays. So how can you ensure that you'll be able to make the most of this time, financially secure and able to enjoy life? What are the key things you should consider when planning your finances for retirement?
Prepare to succeed. Write down how you are planning on investing for retirement. This helps focus your mind on what you're aiming to achieve and provides a roadmap for action. It also gives you a yardstick that you can return to periodically, to gauge success and potentially formulate alternative strategies.
Part of that plan should be an analysis of your income and all expenditure. Scrutinise everything. For example, are you still paying direct debits for products or services you no longer use?
Get out of debt. Focus on clearing all your credit cards and other high interest debt before you start making retirement investments. Unless you are unusually successful, the positive returns from investments you make will never come anywhere close to exceeding the costs of servicing existing debts.
Harness the power of compound interest by starting saving for your retirement while you're young. A steady five per cent interest rate delivers more than 60% returns over ten years. The best retirement investments are made early - if you can start saving in your 20s, the returns over forty years will be over 600%!
Take the long view when investing for retirement. Flying Colours has proved that time in the markets matters more than timing the market. Over a 15-year period, we identified a whopping 35% overall performance deficit in investor performance compared to benchmark indices that was due to attempts to 'time' the market and fund costs.
Keep your retirement investment costs to an absolute minimum. Annual management charges, dealing costs, taxation, bid spreads, and all the other expenses associated with such investments are a constant burden on your fund.
How will the government contribute? Find out about your state pension benefits and don't forget that regulations and allowances can change.
Consider the potential impact of external factors. For example, what might happen to inflation if the UK votes to leave the EU - and how might that affect your chosen retirement investments?
Be realistic about life expectancy. The very best retirement investments will be the ones that pay out right until the end, whenever that may be. According to the Office for National Statistics, the proportion of the population over state pension age is predicted to rise to 23% in 2031 - as compared to 16% in 1971. Annuities may seem unfashionable, especially with the current low rates, but can be an important part of your overall income portfolio when you retire.
Ask as many people as possible, and with as much expertise as possible. Each retirement investment you make carries risks and returns that are specific to your individual circumstances. The more information you have, the better the decisions you will make.
Our independent financial advisers can help you plan for retirement and get the most out of your investments. Call us on 0333 241 9900 for more information.