When you’re five years from retirement it can suddenly seem very real, going from a dot on the horizon to looming into view. Tempting as it might be to avoid thinking about it, that doesn’t make it go away — it’s time to give it some proper consideration.
But this doesn’t need to be a chore. Working out where you’re at now, how you want your later life to be and what steps you can take now may be a surprisingly valuable exercise and potentially give you useful peace of mind. So, here are five key things to think about as your retirement years edge closer.
Check if your savings are on course
Getting an idea of what you’re on track to have saved for retirement is a good place to start. There are several steps you can take here. One is to look at the annual pension statements that the providers of any workplace and private pensions give you (either by post, online or through your app). These statements will provide an estimate of your future pension pot value and the regular retirement income your pension is on track to generate. Many providers also offer pension calculators that can help you work out if you need to increase your contributions.
If you’ve worked for a few different employers there may be some potentially valuable lost pensions in your name. An estimated £50bn is at risk of being misplaced in abandoned pension accounts or scattered across multiple lost pots, according to research last year by PensionBee.
Know what you want
Now that retirement is becoming more tangible, it’s worth spending time thinking about your goals and the kind of lifestyle you want to enjoy in your later years. There’s also the question of whether you want to stop working at a certain age or take a more phased approach and continue in some form of employment for a few more years.
Some of these choices may be forced on you by circumstances such as your health, nature of employment and savings levels, of course. Either way, it’s still important to think about how you want retirement to look so you can get an idea of how much it will cost. The Retirement Living Standards website run by Pensions UK (formerly the Pensions and Lifetime Savings Association) offers a guide on how much you need to save for certain standards of life in retirement.
Review your portfolio…
When retirement is still a long way off you can afford to block out the noise and endure the ups and downs of investment markets, knowing you have time to recover any losses and potentially gain from the rebounds. But the calculations begin to change as retirement gets nearer.
Investors planning to use their savings to buy an annuity will usually be in pension plans that automatically de-risk their portfolio as retirement approaches. But these days, most people keep at least some of their money invested during retirement, through drawdown plans, and stock market volatility will invariably get the nerves jangling as retirement approaches. So, it’s important to check your portfolio regularly to ensure your investments are sufficiently spread across a range of different assets, regions and industries, and consider whether your portfolio still reflects the level of risk you’re comfortable with taking. We have six things to look for when reviewing your investments to help you get started.
…But don’t panic
Markets have been as unpredictable as ever this year, with both sharp corrections and record highs in short periods of time. If you’re nearing retirement you might be tempted to take your pension savings out of stock market-based investments and move your money into low-risk assets such as cash.
But this is rarely a good idea, not least because it means turning paper losses into actual losses and missing out on the recovery that will inevitably follow. In such circumstances, it might be better to consider delaying retirement. Accessing your pension savings before retirement can be similarly unwise. If you intend to remain invested and enter a pension drawdown plan, cashing in your investments makes little sense. The key is to make sure that your portfolio remains diversified and still reflects your risk appetite and goals.
Bolster your savings — and invest wisely
If you intend to go into drawdown you’ll likely keep a certain amount of your portfolio in stock market-based assets right up to and into retirement. This gives you plenty of scope to boost your pension pot by increasing your contributions and maximising the benefits of the tax relief on pensions. This tax relief means that for every £100 contributed, basic rate taxpayers only have to pay in £80, higher rate taxpayers £60 and additional rate payers £55 (if you’re in Scotland it’s the Scottish income tax levels that apply).
You’ll also want to ensure you have a well-diversified investment portfolio that is making your money work as hard as possible. This can include checking you’re not paying too much for your investments or your platform. Investment platforms offer fund and portfolio recommendations based on risk profiles, as well as tools such as portfolio builders, risk questionnaires and various calculators. To compare platforms, including fees and charges, use our free comparison tools!
Photo by EnsearchofYou on Pexels
