Once you reach your 50s, that big birthday celebration can feel symbolic as you edge closer to retirement and all life’s possibilities lie ahead. Table of contents
However, less joyous is the prospect of retiring on a measly pension or being forced to work longer than you’d like because your nest egg won’t pay the bills.
The good news is that investment can be a great way to boost your budget, establish a strong portfolio, and give you thousands of great reasons to look forward to the decades ahead.
Let’s talk about retirement savings, pension investment, and why it’s never a bad idea to start being smart with your cash in your 50s. Choosing An Investment Approach In Your 50s
Many people have a mixture of assets, even if you wouldn’t call yourself an investor – like an ISA and a pension fund.
You probably pay more into your ISA and make auto-enrolment minimum contributions or direct debit into your pension fund every month and don’t pay much attention to what’s happening with the fund.
Taking a look at your anticipated pension benefits can be a bit of a wake-up call, and no one wants to be wholly reliant on a minimal State Pension when they’ve still got time to do something about it.
At this stage, your focus shouldn’t be on savings products that are easily accessible and more on getting that retirement fund into a healthy position – and it’s a good move from a tax perspective.
However, making some proactive investment decisions could produce better returns than your pension, depending on your risk profile and the level of say in how your fund is managed. Establishing Your Retirement Financing Gap
Step one is to think about the funds you expect to need in retirement and how well your current pensions cover the total.
You can make the process as complicated or straightforward as you like, but you need to think about: Basic living costs
Holidays and travel
Car maintenance and buying a new vehicle
Home improvements
Eating out
Gym or fitness club memberships
Clothes shopping
Calculations vary, but basic living costs will usually be the bulk of any budget, at an average of £16,800 a year.
To cover everything on the list, most people are looking at a fund providing £40,000 a year, potentially more if they have debts, a mortgage or rent to pay.Be conscious that UK life expectancy is 81 years old, so you want enough to keep you going for at least three decades.Next, you need to evaluate all of your pensions with an up to date pension statement that sets out the total benefit, any lump sum withdrawal options, and a monthly forecast payment.This process helps you see how close you are to your financial goals and gives you a clearer picture to develop an investment strategy that’ll meet your expectations. Finding The Right Balance In Retirement Investing Once you better understand your position, you need to think about income investments vs growth investments.If your pension is healthy and will provide plenty of income for your living costs, but you need an earnings boost to finance holidays and luxuries, you’re in a strong position.Where you’re reliant on your investments to increase your general earnings to cover basic expenses, it’s necessary to assess risk carefully. Although you want the maximum profit, you cannot afford to take a gamble.Much depends on your circumstances – if you’re 59 and have no plans to retire for another decade, you might opt for a mixture of growth and income investments.The difference is normally that: Investments such as shares have the potential to grow in value. Bonds are a type of debt owing back to you from the company, and the profit is the interest you earn. It’s not always quite so simple because equity-invested funds exist to provide an income, and you can pick bonds created to generate asset value growth, but the principle stands.An investment trust is also a possible solution, structured slightly differently from a regular investment fund and designed to produce an income. Unsure Why Growth Vs Income Investment Is Important? Because the investments you choose – equities, bonds, or a bit of both – will rely on your risk appetite and the time you have before your planned retirement, and what that means for the loss potential you’re prepared to accept.As you get closer to retirement, you will rely on your investments for income, so normally switch the balance.The easiest way to compare funds is to look at the yield, indicating […]
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