Are you on track for retirement?
Navigating the path to retirement requires careful planning and informed decision-making. With a myriad of options available, finding the right strategy tailored to your needs is essential. Your retirement goals and the amount of money you'll need depend on various factors, including your current financial situation and future objectives.
How much money do I need to retire?
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Determining how much money you need to retire is crucial. Understanding this will help you ensure that your assets generate enough income to cover your living expenses once you stop working. Without adequate planning, you risk running out of money and becoming a financial burden on your loved ones.
The first step is to create a detailed household budget that estimates your retirement living costs. If you're unsure, our monthly cost of living calculator can help. Once you have a clear picture of your expenses, you can calculate the value of the assets required to generate the necessary income. Use our retirement calculator to crunch these numbers for you.
How much should I be saving for retirement?
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A general rule of thumb is to contribute an annual percentage of your earnings equivalent to half your age when you start saving if you plan to retire at 65. For instance, if you start saving at 20, aim to save 10% of your salary; at 40, save 20%. Employer contributions to your retirement plan can count toward these percentages.
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Adjust your savings rate as your earnings fluctuate throughout your career. This approach links your lifetime earnings to your retirement income, meaning modest earners will likely have a modest retirement income. Additionally, recognize that your earnings potential may plateau. Save aggressively while your income is at its peak to ensure a comfortable retirement.
Our retirement calculator can project the amount you need in your pension pot, and our monthly savings calculator will help you determine how much to set aside regularly. Remember, the sooner you start saving, the better.
How should I invest my money?
Before retirement
If you have more than ten years before retirement, equity-based funds should dominate your portfolio. Younger investors should focus on more aggressive, riskier assets, as these typically outperform conservative investments over the long term despite short-term volatility. An international investor might include UK, American, European, Japanese, Asian, and Emerging Markets equities, with some exposure to fixed interest and commercial property funds.
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As retirement approaches, volatility becomes a greater risk. About ten years before retiring, start increasing your exposure to fixed interest investments, such as corporate and government bonds, money market funds, and cash. Gradually shift fully into these safer assets to protect your retirement funds from sudden market declines.
In a QROPS or SIPP, you can select investments that match your circumstances and risk tolerance. Regular reviews with your financial advisor or discretionary manager are essential to ensure your portfolio remains aligned with your goals.
At retirement
At and after retirement, your portfolio should focus on generating income rather than growth. Corporate and government bonds, money market funds, and cash investments are suitable for this purpose. If you wish to retain some exposure to stocks, consider equity income funds or stocks that pay steady dividends. These can provide income drawdowns from your QROPS or SIPP.
Again, regularly review your investments with your financial advisor to ensure they remain suited to your circumstances and objectives.
Investment Risk
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Investing inherently involves various risks, including inflation, shortfall, manager, liquidity, market, and currency risks. Many people mistakenly believe that bank deposits are risk-free, but inflation can erode the value of their capital.
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Volatility, the fluctuation of returns around an average, is a key concern. Highly volatile investments, such as stocks, can see returns vary widely, creating uncertainty. Conversely, low-volatility investments like bank deposits offer more predictable returns.
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High-return investments typically come with higher volatility risk. While they may yield better returns in the long run, their value can decline in the short to medium term. Selecting the right asset allocation and underlying funds depends on your risk tolerance.
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Use our risk profiling tool to determine your risk score. The assessment will categorize you as:
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Very Cautious
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Cautious
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Balanced
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Growth
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Adventurous
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These terms may vary somewhat from firm to firm and sometimes this result is provided on a scale of 1 to 5, or 1 to 10, with 1 being risk-averse and 10 being speculative for example. Whatever the case, your financial advisor or discretionary manager will use this information in conjunction with your preference, circumstances, and objectives to tailor a portfolio to your unique situation.