top of page

Are you on track for retirement? 

There are a huge number of options available and unfortunately, no one-size-fits-all solution exists when it comes to planning your retirement. The amount of money you need to retire and your chosen investments depend on your circumstances and objectives.

How much money do I need to retire?

This is one of the most important you should be able to answer and the first thing you need to understand when planning your retirement. Why is it so important? Because, at some point in your future, you will stop working, whether through choice or because you have to. When this happens, you need to ensure your assets are generating enough income to sustain your cost of living, otherwise, you risk running out of money and becoming a financial burden on the people you love. 

The first step in determining how much money you need to retire is to create a household budget to plan your expected retirement living costs. If you are unsure, use our monthly cost of living calculator tool. 

Once you know how much your living costs will be and the income you will need to cover these expenses, you can calculate the value of the assets you need to have to derive this income. Use our retirement calculator tool to crunch the numbers for you. 

Planning your retirement

How much should I be saving for retirement?

The general rule is that, if you want to retire at age 65, you should contribute an annual percentage of your earnings equivalent to half your age when you start saving. That means If you start saving when you are 20, you should be putting away 10% of your salary, and at 40, you should be saving 20% of your salary. If your employer contributes to a retirement plan on your behalf, this can count towards these contribution percentages. 

As your earnings increase or decrease throughout your career, you should also make sure that this percentage is maintained. Obviously, applying this approach will link your lifetime earnings to your retirement income and lifestyle. Therefore, if you are a modest income earner, following this approach will limit you to a modest income in retirement. 

You also need to consider that your income and earnings potential are quite likely to plateau at a certain point in your career. Few people's jobs are completely secure in this day and age. If you feel you are reaching a career plateau, it would be prudent for you to save as much money as you can while you have the ability to do so. How do you know you are at the top of your game? A simple gauge would be to estimate the likelihood of you being able to secure a similar or better position if you lost your job. 

If you have used our retirement calculator to project the amount of money you need to have in your pension pot to retire, you can use our monthly savings calculator to find out how much you should ideally set aside. If there is one crucial takeaway from this whole retirement planning exercise - it should be that the sooner you start saving for your retirement the better. 

How should I invest my money?

 

Before retirement

 

If you have ten years or more to go until you retire, equity‐based (stocks) funds would generally form the bulk of your portfolio. Younger investors should look to more aggressive, riskier assets as they would likely outperform more conservative investments in the long run, in spite of short-term volatility. An international investor would usually have exposure to the UK, American, European, Japanese, Asian, and Emerging Markets equities in their portfolio. Exposure to fixed interest and commercial property funds could also be considered.

 

As you near retirement volatility becomes a greater risk. Therefore, as a rule of thumb, roughly ten years before you retire, it is prudent to start ring-fencing the gains you have made on your portfolio by increasing your exposure to fixed interest investments, such as corporate and government bonds, money market funds, and cash then gradually moving fully into cash and fixed interest once you are close to retirement. This will help to shelter your retirement funds against sudden falls in the stock markets.

 

In a QROPS or SIPP you are able to select a portfolio of investments that match your circumstances, the risk you are prepared to accept, and various views on the market at the time you are investing. It is important to review your investments regularly with your financial advisor or discretionary manager to ensure your investment portfolio is still aligned with your circumstances and objectives over time.

 

At retirement

 

At and after retirement, it is normal to have a portfolio that is built to provide returns through income rather than growth. A portfolio of corporate and government bonds, money market funds, and cash than investments can do this. If you still want exposure to stocks, we believe a good place to start is with equity income funds and or direct holdings of stocks that pay steady streams of cash dividends. These investments will allow you to take benefits from your QROPS of SIPP by way of the income drawdown arrangement.

 

In a QROPS or SIPP you are able to select a portfolio of investments that match your circumstances, the risk you are prepared to accept, and various views on the market at the time you are investing. It is important to review your investments regularly with your financial advisor or discretionary manager to ensure your investment portfolio is still aligned with your circumstances and objectives over time.

Investment Risk

Investing involves risk. There are many different types of risk when investing; inflation risk, shortfall risk, manager risk, liquidity risk, market risk, currency risk, inflation risk, etc. A lot of people believe their money is safe and risk-free in the bank, when in fact their capital will be eroded by inflation.

Volatility can be simply defined as the dispersion of returns for a given security or market index around an average (or mean return). If a particular security’s returns fluctuate wildly around its average return then it is said to be highly volatile. Bank deposits, for example, have a great deal of certainty associated with their projected returns and therefore have low volatility.

Generally speaking, the daily or monthly returns of listed shares can fluctuate quite a lot and they will therefore exhibit significant volatility. High volatility leads to uncertainty in expected returns, and it’s this uncertainty factor that worries most investors into avoiding investments in the financial markets and accepting a guaranteed loss on their capital due to inflation.  

 

Generally, investments that are expected to pay higher returns involve more volatility risk. While these investments are likely to produce higher returns over the long term than more conservative investments, over short and medium-term periods they can fall in value.

 

The selection of the appropriate asset allocation and underlying funds must take account of the level of risk you are willing to tolerate.

Try out our risk profiling tool to find out what your risk score is. The outcome of this assessment will tell you if your risk profile category is; 

  • Very Cautious

  • Cautious

  • Balanced

  • Growth

  • Adventurous

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.

bottom of page