Scottish Widows, one of the largest pension providers in the UK, has recently published its annual Pension Savings report, which is based on a YouGov survey of some 5,200 UK adults. The survey looks at attitudes towards retirement saving and the results are worrying. Over half of the individuals surveyed are “not saving adequately” for their retirement, with 20% currently setting nothing aside. The report also found that an increasing number of individuals are reaching retirement age with unpaid debts.
Considering the reducing support that will be provided by governments and employers in the future, combined with the fact that people are living longer, the report serves as a reminder of the onus being on individuals to ensure they adequately provide for themselves and their family in retirement.
Here we briefly cover the main points to consider when planning for retirement.
How much to save?
This is will obviously be specific to the individual. As well as considering income requirements in the future and the time available for investment, it is also important to review existing pension policies and other assets to establish if they could be utilised in a more effective manner. It is important not to underestimate the potential effects of inflation in the future. Some relatively straightforward cashflow modeling based on assumptions with regard to future investment growth, and inflation rates can help set savings targets.
How to save?
Once you have reviewed existing assets and identified realistic savings potential, it is vital that proper consideration is given to a suitable investment strategy and that performance is monitored regularly. The cashflow model can be referred to as a template from which progress towards your goal can be monitored. This should happen at regular intervals.
How you implement your retirement savings strategy should take into consideration the savings products available to you, the charges of the product, the flexibility, your attitude to risk, tax efficiency for your personal circumstances, both now and in the future, as well as the range of investments available within the product. Again, suitability will be dependent on individual circumstances and should form part of a well-rounded strategy taking into consideration existing assets.
Thinking about the end goal
In the USA, where global trends in the developed world tend to start, increasing numbers of people are working for longer. Not only is this thought to be out of necessity in certain cases, but also out of a desire from professionals to gradually retire or to continue working in consultancy roles. This would imply that having flexibility regarding access to retirement savings will become more and more important in the future. There have been many positive developments in this area over recent years, with Capped and Flexible Drawdown from UK pensions allowing individuals to tailor their capital and income requirements with greater ease than historically available via the traditional annuity route. Of course, it may be that the traditional pension may not be the most suitable way for people to save for their retirement and other methods of accumulating savings should be employed.
This last point emphasises the need for individuals to consider their own circumstances and to seek professional, qualified advice to help them make an informed decision with which they are comfortable, having reviewed all of the options available to them.
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