Article written by Robert MacDonald of Macdonald & Co
The views in this article are personal and are provided for informational purposes only and should not be construed as recommendation by the publisher or investment advice by the contributor as laid down by the Financial Conduct authority.
It is the big question: will my pensions and savings expire before I do?
A large portion of the UK population actually does not have a clue about how this may play out and that is a very dangerous position to be in right at the end of your working life when you are hoping for a comfortable retirement. Recent research from the Chartered Institute for Securities and Investments found that less than five per cent of the population actually has any type of financial plan.
You worked hard to accumulate a pot of money and now the time has come to de-cumulate and spend those hard-earned savings. What you need to do now is a thorough analysis of what your retirement might look like and robust plans to make that happen – and more importantly make sure you don’t run out of money.
Recent figures from the Office for National Statistics show average life expectancy varies between different parts of the country. Here in Scotland for a man and woman aged 65 the figures are 17 and 19.5 years respectively; another way to help judge life longevity is to look with your own family circle.
That all might sound a touch macabre but it is a question of balance; if you live a long time you could run out of money. Or, if you look at it from an opposite viewpoint, when hard at work building up your nest egg you could be saving and making sacrifices that are potentially restricting spending on your family.
The problem with retirement savings is that if they run out there is usually no way of replenishing them. Caution is the watchword but keeping funds in cash over prolonged periods is unwise because cash is unlikely to stay ahead of inflation.
What is needed is to sit down with a financial advisor, who can look at your wealth and discuss your hopes and plans for retirement and decide the best course of action for your cash.
Stock market investment is likely to show better returns but has a risk attached and this is where a robust and cohesive financial plan is imperative.
Your financial planner should be able to give you an expected portfolio rate of return based on your risk tolerance and risk attitude.
This should bring together your spending needs, the money available from pensions, investments and state pension benefits.
Most importantly it should be reviewed at least once a year to give you have the best chance of a good retirement. You do not want to find out too late that you are not going to meet your objectives or do what you want to do and have no time to make up any cash shortfall.
As Warren Buffet, the world’s most prolific investor puts it . . . . ‘You don’t want to discover when the tide goes out – you have been swimming naked!’