Retirement Planning
As we await the arrival of all our colleagues to the staff canteen, our head is full of mixed emotions. The customary gold watch and small cheque, presented by the managing director. The speech on how good our service was to the Company and how much we will be missed.
That's the way it used to be maybe, but few people today have accumulated enough service to merit the gold watch. Many managing directors don’t even know the people who work for them. No, today it is more likely to be just a “cheerio and all the best!” As you leave the company premises for the last time. And what to do with this new found time and money? The time, well, it should really have been planned about two years before retirement.
The money, well who knows these days? Stock markets falling for three years in a row. The UK following the Americans into a war that perhaps can’t be won. Interest rates at the lowest levels for 45 years. Now is probably the time to make serious plans to endure the remaining part of your life. The "golden years"
I have previously mentioned in these articles the need for spreading the risk and minimising the risk of losing money. Sure, if markets fall and your portfolio is equity related (invested in the stockmarket), then the value of it also falls. But the secret is to have a portfolio that is not necessarily subject to stockmarket movements completely. Typically, someone retiring today may have accumulated a reasonable sum of money between Peps, ISAs, Tessas, endowment policies and pension plans. Then there is the cash on deposit and perhaps national savings and premium bonds. So what does one do to maximise returns, with least possible risk, retaining tax-efficiency and oh! I nearly forgot, have access to the monies?
Well, on the assumption that you talk to an independent financial adviser, you would start by considering what your immediate cash and income needs are likely to be in retirement. When you have this figure in your mind, think about the actual guaranteed pension you will receive. If there is a shortfall, where is this to be made up from?
Next, the ready cash amount should be set aside and included in this, would be the spare emergency funds that you may need. Or more accurately, the cash the children or grandchildren might need. Normally ready cash would be up to about 25% of your overall monies. In this climate though, 30% is usually more welcome. This leaves 70% of your “pot” to consider for growth and maybe additional income needs. Here, with some help, you can gauge what your investment attitude is. More easily said, “What risks are you prepared to take with parts of the remaining monies?” Remember, you old Peps, Tessas and ISAs can all be included here. You should be aware that you can change Peps and ISAs from one plan manager to another and still keep that investment as a Pep or ISA. The chancellor has indicated last year that he will require to borrow more money over the next two years. This will be raised in the gilt market, so some form of gilt investment might be sensible. This can be done via the post office or indeed via a unit trust investment or investment bond. As company share prices have fallen, many leading companies have continued to pay and indeed increase dividends to shareholders. This, in turn, makes income funds relatively attractive. The best way of buying these funds is via a unit or investment trust. You should be looking for consistent performance and a steadily rising income stream into the fund.
Also, your adviser should be fully versed in the changes, if any, that there may have been regarding the person actually making the investment decisions on your fund. Try to imagine 3 boxes sitting side by side. The first box on the left is the cash and deposit box. The middle one is the medium term and low to medium risk box. The one on the right is the longer term, higher risk box. What goes in each and for how long is up to you and your adviser of course. But, by using this principle, it is possible to structure your portfolio to allow a happy and worry-free retirement. Remember, a well-structured portfolio can be likened to setting up a business.
No business plans to fail, but many fail to plan!!!
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