If you want to give your retirement income a boost, here are some ideas for where to put your money whether you’ve got five, 10 or 15 years to go.
Saving for retirement is all about thinking long term, but this doesn’t mean your investment decisions are going to remain the same throughout your working life. And since the Covid-19 pandemic hit, stock markets have fallen and, according to the Money Advice Service, are likely to remain volatile for a while. If you’re worried about the impact on your pension, maximising your retirement savings and investments now could help. Here, we take a look at where to put your hard-earned cash to meet your retirement income goals.
How to save for retirement over 10 or 20 years
With some 10 or 20 years remaining in the workforce, you can still cash in on your career. “Signing up to a workplace pension scheme is a no-brainer,” says Maike Currie, investment director at Fidelity International. “Grab it with both hands. You can’t access it until you’re at least 55, but by then it should have grown into a nice pot.”
Outside of your workplace pension, be sure to review your risk. “Look at how your money is invested,” says Jamie Smith, a financial adviser specialising in retirement at Foster Denovo. “Put aside a day each year to review whether you’re on track. There are free, online calculators that can help you with this.”
Alternative investments and private pensions schemes
It’s essential to review investment performance against your current needs and future circumstances, says Jeremy Walker, managing partner of Cambria Wealth Management. He explains that balancing allocation between investments in equities, bonds and other assets is important for the potential upsides, but also for protection in more uncertain times, though that balance can be split differently in the early stages of a career. “If we assume that most younger people are happier to take a little more risk, then it’s normal to assume that the further away from retirement then the higher equity/lower fixed income proportion in any portfolio,” he adds.
For David Woodward, managing director at Woodward Financials, it all starts with an ISA. “A lot of people look at ISAs as a form of retirement provision,” he says, with the key benefit being that ISAs can offer an entirely tax-free income in later life. The focus should always be on tax efficiency, by “utilising ISAs, capital gains tax [CGT] allowances, growth on investments, investment bonds, trusts and so on.” He typically looks to build a growth-only investment pot using a general investment account (GIA), often emerging markets or bio-technology funds, gains of which can be offset against the individual’s CGT allowance. “Other assets like buy-to-let homes should be considered,” adds Jeremy. “Our solution is always to find a balance of risk and reward via a mixed portfolio.”
How to increase your pension savings quickly
Considerations may change once retirement is within sight. “Naturally, as we get older, we become more risk averse,” says Jeremy. He explains that those who are 20 years away from retirement might want to invest in companies that are aiming to grow quickly, while within 10 years of retirement, many seek more stability. Yet David points out that, if you’re getting an actively managed service, you may not need to shy away from growth leading up to retirement, with expert control allowing portfolios to respond to market fluctuations.
With just 10 years to go, start making small sacrifices. “Set up a standing order for a stocks and shares ISA each month,” says Maike. “Even a small sum will grow nicely.” Jamie agrees, adding: “Consider any lifestyle changes you’re willing to make now so that you can save more towards your retirement. Examples include cancelling any underused subscriptions or reducing how often you eat out.” He also recommends reviewing your pension so you can plan accordingly. “Check your forecast via the online Government Gateway to understand how much you might receive and when your state pension commences,” he says.
At five years until retirement, consider your back-up options. “Given the widespread disruption of 2020, it will be highly prudent for those on the edge of retirement to reassess their plans and get a real sense of their current retirement savings before looking at the different options available to start drawing on those savings,” says Maike. “Some may consider either working for longer to recover any retirement losses or exploring supplementary income streams.
“If you’re considering delaying your retirement, make sure you update your pension provider about your chosen retirement age, particularly if you’re a member of its default investment option. By doing this, you’ll avoid de-risking your investments too early, and potentially missing out on any further opportunities there might be for growth.”