Mike Coady Talks Pension Planning
All of us hope to comfortably retire at some point. However, many individuals have yet to define their financial status once they reach their golden years. It is an unfortunate fact that pension plans are some of the most overlooked fiscal instruments in existence and arguably, perhaps the most important. If you hope to enjoy a steady stream of much-needed liquidity at retirement, it is always wise to take the notion of pension planning very seriously. Let’s take a look at some professional tips that will help to ensure your current efforts are headed in the right direction.
The Early Bird Catches the Worm
The main intention of any pension is to accumulate liquidity over time. This capital can then be accessed upon retirement. Ironically, many individuals will not even consider such plans until they are between 30 and 40 years old. We need to remember that contributions will directly impact your future financial situation. In other words, paying into a pension plan at a very early age (even as young as 25 or 30) will provide you with a much-needed fiscal boost later in life. By starting early, you also have the added benefit and significant advantage of having more time invested in the market, meaning your investment has more opportunity to grow due to compounding interest than that of someone who started saving for retirement later in their life.
Generally, when you are younger, you have more disposable income in compassion to a more established individual as you might not have additional expenses such as children or a mortgage to consider. Therefore, it is imperative to start early. Never put these concerns off as you could very well experience fiscal challenges at a later date.
Determine How Long Your Pension Pot Will Last
Another important concern involves the length of your pension pot. This even more relevant when we consider that a study funded by the ONS found that one out of every four men in the United Kingdom may now live to 95 years old. One out of every four women may survive to 97. It, therefore, stands to reason that the length of your pension pot should be able to accommodate such situations.
The major concern to consider here is outliving your retirement savings. We need to remember that a state pension age of 67 years. In other words, nearly three decades of additional coverage may be needed. Taking into account that the majority of defined contribution schemes allow policyholders to access their pension as early as 55 years, it becomes clear that a further critical concern should be whether or not the plan in question is able to last a minimum of three decades.
Might Consolidation be a Wise Choice?
While pension plans are quite different from loans, both share one aspect in common. It can be challenging to keep up to date with the balances associated with different loans as well as any associated commissions or fees. The same holds true in regard to a retirement fund. In other words, more may not necessarily be better in this case.
Many experts believe that it is wise to pay fewer charges by consolidating multiple schemes into a handful of larger pots. This is also an excellent way of being able to accurately calculate how much liquidity you will receive later in life. To put it simply, lumping different pension pots together could provide you with the opportunity to save more cash as you age as well as ease the ability to keep track of all your retirement savings.
Always Examine Charges and Fees
We mentioned fees and commissions in the last paragraph due to the simple fact that they are a part of any pension. However, exorbitantly high rates will inevitably eat into your liquidity if left unchecked and diminish your overall investment returns. If you happen to possess an older plan, the chances are high that you could be paying more than is reasonable. This is why it is prudent to contact a financial professional in order to determine exactly how much you are obligated to pay, how much you are currently paying and ultimately what effect this will have on your overall pension. Once again, the possibility of pension consolidation could come into play here.
Leverage the Power of State Pension Plans
State pensions have been painted in a somewhat negative light by private firms. A reason for this is that not everyone will be eligible for this form of aid. However, it can never hurt to check whether or not you qualify. After all, this is often a right as opposed to a privilege. The main problem here is that those who are denied a state pension have not made a sufficient number of National Insurance contributions. It is obviously better to determine whether this is the case sooner as opposed to later. If you indeed discover that you have been falling short, you could always increase the amount that you contribute on a regular basis in order to amend this. State pension schemes should represent a cornerstone of any effective retirement package.
What About Investment-Oriented Pensions?
Defined contribution plans will often enable you to invest in a number of funds. This is an excellent way to accrue additional liquidity over time and well before you reach the age of retirement. There are generally two primary options to select:
- Funds offering a narrow selection of specific assets (such as shares listed on the FTSE).
- Funds providing a wide range of options (a combination of bonds, shares and treasuries).
While each of these methods has its own benefits, it could be wise to choose the second option. This arises from the fact that a more diversified portfolio is better suited to weather difficult economic times. Placing your “eggs” in a single basket could prove to risky on occasion. It is also extremely important, when assessing the above and all options available to you, that you consult a financial professional. A financial professional will discuss the various options available to you, pro’s, and con’s of those options, and then put a retirement investment plan in place that is the most suitable solution for you needs.
On a final note, we should highlight the fact that a growing number of individuals have become victims of early release scams. In other words, a firm will promise you that it is able to liberate a portion of your capital before you reach the age of 55 in return for a small one-time payment. This is normally impossible to achieve and the chances are high that you could lose a substantial amount of money. Always be sure to check with your pension provider in order to better understand the specific terms and conditions. Never provide your information to unsolicited contacts.
In summary, pension planning should always be taken very seriously and there is perhaps no better time than the present to begin formulating your future. While your age of retirement may seem to be a long way off at the moment, time flies! It is highly advisable that you plan for your retirement now, while you still have the time opposed to the 11th hour when it is too late.
As an expat, investment planning is essential and needs to be thought-through with the assistance of an expert.
For more insights, further advice or guidance, you can get in touch HERE.
Blog published by Mike Coady.
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