The average retirement now spans two decades and this places increased pressure on your retirement funds. According to a survey by SunLife, pensioners state that they want a retirement income of £23k per year, but with the average retirement pot around the £50k mark this is an unlikely scenario.
Over a quarter surveyed were concerned that their pots would run dry before the end of their retirement.
So where to invest? In this post we explore options and how with clever financial planning you can use your investments to replenish funds you may wish to drawdown.
Drawdown and Replenishment
Drawdown has been with us for a few years and this allows you to withdraw a percentage of your pension as a lump sum. Twenty five percent is tax free per year with the rest being taxed at normal rates.
With clever planning it is possible to withdraw some of your fund and leave the rest of your pot invested so it replenishes back to the original amount. This gives you tax free cash and safeguards your pension pot.
Investing Across a Range of Funds
To mitigate risk it is always a good idea to ask your financial planner to spread the risk across a range of funds rather than putting all your eggs in one basket. This is called diversification. The traditional method of investing in ‘safe’ companies and government bonds give such a low yield at the moment that the amount you can drawdown safely is restricted.
It is for this reason that professional financial planners recommend diversification.
Where to Invest Retirement Funds
Many savers are using equity income funds which primarily invest in leading companies. They aim to match the average stock market dividend payout which currently stands at 3.5%. Before you trawl the web looking for the best equity income fund, talk to me an award winning financial planner. I can help you mitigate your risks.
What are Bond Funds?
Bond funds invest in the debt of governments and companies. The funds return a fixed rate of interest. The riskier bond funds invest in overseas governments and companies that are less than stable, with safer funds concentrating on first world governments and more established firms.
The risk factor comes into play that should a government default on its payment or the firm goes bust, you can lose your investment.
Absolute Return Funds
The aim of an absolute return fund is to ensure you get a return. Different funds invest in different financial vehicles including currencies, stocks, and derivatives. They are complex to understand but they can be an option to invest part of a fund acting as a kind of safety net. Again, a financial professional should be brought in.
Make your Pension Pot a Winner
Financial investment for your pension pot is both complex and colourful. Cutting through the jargon and making sense of financial products is not an easy task, and as such it is important to bring in a professional financial planner like me.
I can help you make sense of the market and get the best possible return for your investments. Let’s work together to give you a happier retirement.
Source: Mail Online
For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]
