Retirement planning service

Retirement planning is a very topical subject in the financial press. There are worrying stories in the news almost daily about saving for retirement and how urgent it is for us all to provide for our futures.

With what is deemed by many to be meagre financial support from the government, the importance of careful and well laid plans has never been more crucial. Yet many of us still do not have a properly defined plan to aim to get to live the lifestyle we want when retired.

Why save for retirement now?

The basic state pension for a single person or a married couple really is only sufficient to provide an existence living and there is much speculation as to whether benefits will still be available when future generations retire.

In order to calculate your required retirement income, you will need to calculate your expected expenditure.

Inflation can have a significant effect on your purchasing power. You also need to consider taxation, as both Income Tax and Capital Gains Tax could affect your income in retirement. Also, delaying taking action even by a couple of years can have a significant impact on the amount you will receive when you reach retirement, especially if you would like to take early retirement.

Diversifying risk

Much of your future potential income will come as a result of the investment decisions you make today.

Potential investment returns and the associated risks are closely correlated. The more risk taken the higher the potential returns but, of course, the higher the potential negative returns also. Generally, the more risk taken, the more volatile the investment will be.
In order to maximize investment performance and reduce the associated risk, a diversified retirement ‘plan’ may consist of a combination of asset types, including equities, gilts, corporate bonds, property and cash.

The way that one diversifies risk is by investing in different asset classes - and then in different sectors of the economy; for example, in services, financials, manufacturing companies, retail and so forth. One can also diversify risk further by investing in different geographical regions other than the United Kingdom.

By definition, investing in countries outside of the United Kingdom is higher risk, as one must take into consideration the effects of currency exchanges. Generally speaking, ‘emerging markets’, the Far East, China and Japan are considered to be higher risk than the United States or Western Europe. The value of your investment and income may fluctuate due to investment performance and foreign currency fluctuations.

Your risk profile

It is important to understand your attitude to risk as this determines the types of asset that mirror your risk profile, and also what percentages you would invest in each asset type.

At Wealth Matters, we use different risk modelling tools to ascertain your risk profile, which takes into consideration a number of details including your age, your requirement for income or growth or a combination of the two and your intended retirement date.

Your options for retirement planning

There are a number of vehicles that you can use to plan for retirement. Each has advantages and disadvantages, so it is always important to talk to a financial planner to identify the ones that suit you best.

To help you decide on the right vehicle, you should ask yourself the following questions:

• What is your attitude to investment risk?
• At what age do you want to retire?
• What other existing investment do you have and/or assets?
• What income do you want to retire on and how do you want to take the benefits when retired?