Elements of a Healthy Retirement Plan
- 2 | Flexibility -
Moving with the tide
Life is full of surprises
To be honest, setting up a retirement fund is getting much easier than it once was. You decide how much you want to invest, choose a provider - then go online and can be all systems go in a matter of minutes.
And what's amazing is how quickly that money then starts to grow. It doesn't take long for you to forget the money is leaving your account. But they quickly start to add up. Until you go back 2, maybe 3 years later and find they've built up into a decent, maybe even sizeable sum.
At the same time, you life may also builds up. Your salary might increase, your job may change, you may get married (or less happily, divorced), have children. And eventually see those children leave home.
And those are just the planned changes. Lots of unexpected things can happen as well. And your plan should be flexible enough to have these changes reflected.
At its most simple, your plan should allow you to increase, decrease, start and stop payments. Without penalty. To reflect salary increases. To account for periods out of work. Or when other demands mean you need to take a break.
You also want this process to be simple. As little paperwork as possible. Indeed, as simple as being at the click of a mouse, if possible.
Scientific research suggests that your fundamental attitude to risk changes very little over the course of your life. What does change, though, is your capacity to actually take that risk.
For example, even the most adventurous investor will one day retire. And at least some of the money they have built up will need to be available to pay an income from the very first day of that retirement. Having it all invested in something very volatile, right up to the last minute, then, is not sensible. Because that money could disappear in a market crash, literally in the month that you need to withdraw it.
Your own retirement plan has to be flexible enough to allow you to consolidate gains and realign your money with any changing reality. In fact, it is so important, you can now find some of the newer pension plans do it automatically.
In any market, even over the course of a single year, different assets can perform at different rates. Equities may push ahead, property may come under pressure, cash rates may fall – or the complete opposite might happen.
The result of which will be that your carefully planned allocations - and therefore the risk you are taking - could quickly move out of line.
Your retirement plan therefore needs to allow regular reviews and re-balancing. Using a simple process. At no additional cost.
(Which is why our own top-rated funds list includes so many low cost, multi-asset options. Because that way, it will all be done for you.)
Back in 2014, Chancellor George Osborne uttered that now infamous line:
"no one will ever have to buy an annuity"
Within hours, the whole landscape of the pensions industry began to change. And the market for annuities dived, almost overnight.
Four years later, Pensions Freedom is part of the furniture. Except that, even now, some people remain in retirement plans that cannot cope with the new opportunities. Which leaves them facing either large bills to get their money moved or with no option but to accept the limited options those old plans inflict on them.
Which just goes to show that, there is always a need for flexibility. Even when all around you looks calm, you can count on Government - or the unexpected result of a vote - to throw up a storm without warning...!!