In addition, high charges can have a seriously detrimental impact on your retirement over the long-term, so shopping around is vital. These are all areas where the guiding hand of a quality adviser can make all the difference.
If people get this bit right and build a decent pension pot in the first place, it becomes much easier to make that pot last – even over a lengthy retirement.
Simple steps to help clients make their retirement pot last
The pension freedoms, introduced almost nine years ago (where has the time gone?), have provided advisers and clients with welcome flexibility to build tailored retirement income strategies.
While there are often calls for ‘innovation’ in the retirement income space, the reality is that it is already possible for advisers to create bespoke plans using the existing products available.
The key is ensuring you know your goals, spending plans and appetite for risk. Again, a good adviser can play a central role in creating a sensible and realistic plan.
Given the complexity that exists in pensions – and particularly decumulation – breaking things down into easy-to-understand aims can be useful. Below are some that could be worth citing when talking to less experienced investors:
1. Set a reasonable income target. Financial planners often say 3 per cent to 4 per cent of your initial fund value, with income increasing in line with inflation, is a decent starting point for a healthy person at state pension age (currently 66). However, this is not a hard-and-fast rule and may not fit your circumstances.
You might be able to take more than this if you retire later (or have other income sources), and less if you retire earlier. You might also be able to take more than this if you have other income sources or below-average life expectancy.
2. Make a realistic budget and try to stick to it. This will help ensure you stick to your spending limits during retirement. Spending too much, too soon is one of the big risks in retirement, particularly given the fact many people will live well into their 90s.
3. Shop around the marketand keep costs as low as possible. This will help to ensure your fund is not eaten up by unnecessary charges and that you get the best possible deal available.
4. Get all your pensions in one place if you can, but be careful not to lose any valuable guarantees in the process. Savers often lose track of pensions during their lifetime, potentially leaving them facing an income shortfall in retirement.
Having all your pensions consolidated with one provider should make managing them a lot easier, as well as potentially cheaper.
