Traditional ideas of retirement are evolving, and the journey can be incredibly personal. Your goals, desires, and lifestyle will likely determine how you enjoy your retirement.
However, as life expectancies grow, pension regulations shift, and your circumstances change, you might become more concerned about your money’s longevity.
Here, the concern isn’t just about outliving your wealth but maintaining your desired lifestyle throughout retirement.
Investing in retirement can help with this, but there are some important factors to consider before you dive in.
1. Your life expectancy and time horizon could affect your investment choices
One of the most crucial factors to consider is how long you expect to live and how long you expect your retirement savings to last. While this may seem like a pessimistic conversation, the truth is that the Office for National Statistics (ONS) highlights that life expectancies are on the rise.
This means that a retirement could span 20, 30, or even 40 years, depending on your circumstances.
If your money is simply sitting in cash or low-growth investments, its purchasing power may be eroded by inflation over such a long period. Read more about this in the next section.
Moreover, if you live longer than you initially planned, then you may face a situation where you begin to run out of money. This could be a challenging situation to deal with, and while you may have access to the State Pension, it’s unlikely to be enough to maintain your desired lifestyle.
Ensuring that you not only have enough money to last your whole retirement, but that it retains its purchasing power is key.
2. The effects of inflation
Inflation can be a silent destroyer of wealth. While often overlooked, it can steadily erode the purchasing power of your savings over time.
For example, the Bank of England calculates that £10 in 2015 would cost the equivalent of £13.77 in 2025, so the value of your money will have decreased in the last 10 years.
Ultimately, this is likely to continue. While inflation can go down, and has done so since the ONS reported a 11.1% high in October 2022, prices are unlikely to return to pre-pandemic levels.
Remember, even if the rate of inflation slows, prices are still rising.
If your retirement savings are not growing at least at the rate of inflation, you are effectively getting poorer each year.
This is a key reason why a purely conservative approach, such as keeping all your money in cash, can be detrimental to your long-term financial wellbeing.
To maintain your lifestyle and purchasing power throughout a potentially long retirement, it’s likely that you will need to invest a portion of your portfolio in assets that have the potential to outpace inflation.
3. Consider your income needs and cash flow options
Before making any investment decisions, be sure to assess your ongoing income needs in retirement. It may be useful to ensure you have a guaranteed income to cover your essential living expenses.
If you are relying heavily on withdrawing from your investment pot, then further investments may put your financial security at risk.
If your essential needs are largely covered by secure income streams, then you may have the flexibility to keep a portion of your capital aside and use this for further investment.
However, should you need to draw down a significant percentage of your portfolio for daily expenses, then you’ll likely need a more conservative approach to ensure you’re preserving your capital and have a steady income stream.
If investing in retirement is right for you, having a diverse portfolio that includes growth-oriented assets as well as more liquid, stable assets can be useful. This means you can meet immediate cash flow needs as they arise. This is something we would help you balance in your financial plan.
4. Your risk tolerance
While it’s important to consider diversification and long-term horizons, your personal relationship to investment risk is equally important. Retirement should be a time of reduced stress, and worrying about market fluctuations could detract from that.
It might be worth asking yourself how you would react to a significant market downturn. Would you be comfortable with your portfolio temporarily decreasing in value, even knowing it’s for long-term growth? If you feel it would cause more anxiety than you could manage, then it’s important to talk to your financial planner about different strategies.
We can help you strike a balance between potential growth and your emotional wellbeing, as well as help you understand the different risk profiles and build a portfolio that aligns with your comfort level.
Finding the right balance
Ultimately, there’s no one-size-fits-all approach, and each person’s retirement journey will be unique.
Ensuring your financial security can be an ongoing process of assessment and adjustment. Regularly reviewing your financial plan with a financial planner is crucial.
This is something we can help with, from navigating market conditions to assessing your evolving needs. We’re here to help your money continue to work effectively for you, both before and after retirement.
Get in touch with us today to find out what we can do for you.
Email info@doddwealthcare.co.uk or call 01228 530913 / 01768 864466 to learn more about how we can help.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances
The Financial Conduct Authority does not regulate cashflow planning.
