When should you start retirement planning?

There’s a really simple answer to this. Right now.

Whatever stage you are at in life, pre-retirement or in-retirement the clock is ticking . . .

Read on to find the 5 critical reasons why you MUST act now on your retirement planning.

Reason 1. The Compounding Effect

Savings into your pension will be invested partly in company shares. As these perform dividends are added and re-invested. Left to compound it means you get growth on growth when companies and markets are doing well.

Compounding creates a snowball effect, as the original amount invested plus the income earned from those investments grow together.

Reason 2. Pound Cost Averaging

If you are still pre-retirement and building up your pension, regular pension contributions are a smart move. Markets and stock prices will fluctuate over time. Sometimes up sometimes down.

When the value of company shares and other investment units lower, your contribution buys more units. Over time if the unit value rises, so does the value of your pension though as you’ve bought more of them at a lower value you will benefit more.

Trying to time markets to put in contributions is not advisable. Nobody can predict when the highs and lows of markets are. It is only with the benefit of hindsight can these be seen.

By the time you’ve identified a low point you may have missed your chance to invest – markets can gain rapidly within days, as witnessed in 2020 during the Covid pandemic.

Far better to pay into your pension a consistent amount regularly, regardless of relative values or market conditions.

Reason 3.  Cashflow Planning

You have to know your number.

At whatever age you retire you’ll need to have accumulated enough money in your pension pot to sustain drawing down from that for the rest of your life.

Only by planning ahead and understanding the income you need each month and each year for your lifestyle, will you be able to have confidence you aren’t going to run out of money.

However far off you are from retirement you need to know your number – the amount in your pension you need to work towards.

From this amount you’ll need to make an assumption of the percentage you’ll draw from this. For instance 3% or 5% of the total pot each year.

If you were to accumulate £500,000 in your pension this would yield you an annual income of £15,000 at 3% or £25,000 at 5%.

Of course, you’ll need to take into account any taxation from this too.

4. Active Fund Management

Finding your number to retire upon is only the start. As you build your pension pre-retirement you’ll want to make the most of growth opportunities in the market. One of the best ways is to have a diversified pension portfolio with a number of carefully selected collective investments.

In essence a collective investment fund consists of a number of company shares, often 20 – 40 within a specific sector such as global or UK equities.

Putting together a portfolio of such actively managed funds is critical to growing your pension over the longer term. Both as you save into it and afterwards as you draw from it in retirement.

5. Decide on a Financial Advisor or DIY

Decisions you make now will affect the pension you build up and your future income in retirement. Few aspects of our lives are so important, though many leave it to chance.

Firstly, if you are considering making investment decisions about your pension and managing it yourself, you need to ask yourself some searching questions:

• Do I have the time and the knowledge to analyse over 3000 collective investment funds or even more individual shares?

• Do I fully understand my risk profile and capacity for loss?

• Have I the tools to properly analyse my present and future cashflow situation taking into account one off events, taxation, anticipated growth rates for the rest of my life?

• How will my investment strategy change if there are future market crashes?

If you feel a little unsettled in answering these questions you are not alone. Unless financial analysis is part of your job or you want this to take over your own time it’s wise to consider taking professional advice from an Independent Financial Advisor or Wealth Manager.

Interested in finding out more?

Seeking a second opinion on your financial future costs you nothing.

Simply call our friendly team on 0121 355 4455 or drop us an email to appointments@oaklandswealth.com to arrange a confidential chat.

Oaklands Wealth Management, founded by Helen Blackburn in 2004 advises clients around the Midlands on retirement planning, pensions & investments.

Her firm holds British Standard BS 8577 for client service & investment process.

Minimum investment is £500,000 (£650,000 for pension transfers).