How much money do you need to retire?
The amount of money required to retire will depend on the lifestyle you intend to lead in retirement. Moreover, the amount of money needed will also depend on the age at which you wish to retire. Thus, there is no fixed amount of income for everyone which is why multiple reputable online sources all quote different figures.
Many of the figures quoted are around £20,000 per year for an individual or around £35,000 per year for a couple. These figures are below the state pension payments for individuals and couples which suggests that leading a comfortable retirement is not completely viable by relying on a state pension alone. To enjoy the most financially secure retirement, you may need to consider:
- Additional pension schemes
- Investments
There are various pension and investment opportunities which can be used as part of retirement planning. These are best discussed with a qualified financial adviser so you can put together a retirement planning strategy that matches your personal needs, expectations and retirement goals.
The different types of pensions and how they differ
A workplace pension is a scheme whereby workers put money into a pension for retirement which their employer also contributes towards. This is now mandatory for employers. You will be automatically enrolled into a workplace pension when starting a new job – and different types could be offered. However, there are other pension options, including a personal pension or a variation of a personal pension called a Self-Invested Personal Pension (SIPP).
A personal pension is a type of pension which you contribute to during your working years. Your employer does not contribute to the personal pension which is one of the things that makes it different to a workplace pension. These pensions are managed by investors, who will invest the money into a diverse portfolio, typically comprising shares stocks and other commodities. The pension aims to provide returns on the money put in each year but because the money is invested, you do accept a degree of risk that you could lose money at times. You can sometimes adjust your level of risk exposure within the pension. For example, you may increase risk exposure in the early years and reduce risk exposure as you get nearer to retirement.
A Self-Invested Personal Pension (SIPP) is a type of personal pension which gives the individual some control over which shares their pension contributions should be invested in. A SIPP typically provides greater options when it comes to investing money. This may be an option if the individual already possesses investment knowledge and wishes to leverage their expertise, or it could be an option if the individual is receiving ongoing financial advice.
If you have multiple personal pensions, you may want to consider consolidating these pension pots to save money on administrative fees. This is best discussed with a financial adviser who can assess your exact situation.
Pension options when you reach retirement
Once you reach retirement age you may wish to access your pension and take no further action. However, you may wish to consider purchasing an annuity or using an income drawdown.
An annuity gives an individual an ongoing payment for a fixed period and sometimes for the remainder of life. They can be purchased for a lump sum payment which is often achieved using a lump sum payout from a personal pension, disposal of investments or from savings. An alternative option is income drawdown where the individual accesses their pension through ongoing payments but allows the remainder of their pension pot to keep being invested. This means their pension balance could continue to grow during retirement, although there is also a risk that investments could lose money and the pension pot will decrease.
What are the common investment options?
High-interest savings accounts and the stock market are two of the most common places to invest money and try to build wealth over time which may be part of a retirement plan. Another option is a Stocks and Shares ISA which is a tax-efficient vehicle to invest in stocks and shares.
This type of ISA is not the same as a Cash ISA which allows limited cash deposits each financial year to build tax-free wealth. The money put into a Stocks and Shares ISA is invested into stocks and shares, as well as corporate bonds, government bonds and unit trusts. The money you put into a Stocks and Shares ISA is at risk due to the investments being made but the goal is to gain returns from the investments so your money grows.
You can invest in unit trusts through a Stocks and Shares ISA or you can invest directly into unit trusts as a standalone investment. This investment option is ideal for people who wish to invest but do not possess the technical knowledge or skills to make investment decisions themselves. Funds are invested into a unit trust which is managed by the fund manager. Each investor is called a unit holder and each investment is a unit. There are options to decrease or increase risk exposure as part of this type of investment to align with personal risk tolerance and investment goals.
A further – but not as common - option is an investment bond which is a type of single-premium life insurance policy that offers potential tax benefits. These unique products are a hybrid between an investment strategy and a life insurance policy. The money deposited is invested in several mutual funds based on the individual’s risk tolerance and preferences. The value of the investment will be paid out to estate beneficiaries when you pass away.
FAQs
There is no correct answer to this question and, in many ways, a personal pension is a type of investment vehicle itself as the funds are invested into stocks and shares. The best strategy for you depends entirely on personal circumstances which is why it is crucial that your situation and goals are considered, rather than copying other pension or investment strategies. Moreover, it may be beneficial to diversify your retirement planning strategy to include a personal pension product and investment vehicles simultaneously.
Speak to a qualified and reputable financial adviser to help you assess your suitability for different pension and investment options. A financial adviser will confidentially discuss the different pension and investment options based on your individual situation, including retirement goals.
Your financial adviser will explain all viable options as well as discuss the pros and cons of each, including discussing risk exposure within any pension or investment product. Without equipping yourself with the right knowledge to make informed decisions, you may choose a pension product or investment opportunity that doesn’t match your objectives and preferences.
If you are considering a personal pension where funds are invested into stocks and shares, it can be worthwhile to receive qualified advice first. The adviser can explain the options, as well as help you understand the levels of risk and how to mitigate risk with different products. In summary, they can provide you with the tools to avoid mistakes and make informed decisions to increase your chances of successful investments. However, no financial adviser should ever guarantee that your investment will be successful.
It is only worth paying for investment advice if you have clear aims and objectives and if you leverage the services of a financial adviser who is qualified and provides a 100% tailored service. If you are paying for investment advice, you should not be receiving generic advice. Our financial devisers always take a client-first approach to ensure we adhere to industry standards. This is why it is not suitable to rely on investment information from online sources alone. Although these sources can be informative, they do not consider your situation and needs.
Pension and investment advice can also be provided as part of wider financial planning services, which are also available through Taylor James. Speak with our team today for further information and to book your consultation.
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FAQs
There is no correct answer to this question and, in many ways, a personal pension is a type of investment vehicle itself as the funds are invested into stocks and shares. The best strategy for you depends entirely on personal circumstances which is why it is crucial that your situation and goals are considered, rather than copying other pension or investment strategies. Moreover, it may be beneficial to diversify your retirement planning strategy to include a personal pension product and investment vehicles simultaneously.
Speak to a qualified and reputable financial adviser to help you assess your suitability for different pension and investment options. A financial adviser will confidentially discuss the different pension and investment options based on your individual situation, including retirement goals.
Your financial adviser will explain all viable options as well as discuss the pros and cons of each, including discussing risk exposure within any pension or investment product. Without equipping yourself with the right knowledge to make informed decisions, you may choose a pension product or investment opportunity that doesn’t match your objectives and preferences.
If you are considering a personal pension where funds are invested into stocks and shares, it can be worthwhile to receive qualified advice first. The adviser can explain the options, as well as help you understand the levels of risk and how to mitigate risk with different products. In summary, they can provide you with the tools to avoid mistakes and make informed decisions to increase your chances of successful investments. However, no financial adviser should ever guarantee that your investment will be successful.
It is only worth paying for investment advice if you have clear aims and objectives and if you leverage the services of a financial adviser who is qualified and provides a 100% tailored service. If you are paying for investment advice, you should not be receiving generic advice. Our financial devisers always take a client-first approach to ensure we adhere to industry standards. This is why it is not suitable to rely on investment information from online sources alone. Although these sources can be informative, they do not consider your situation and needs.
Pension and investment advice can also be provided as part of wider financial planning services, which are also available through Taylor James. Speak with our team today for further information and to book your consultation.
