Free Guide – Is Your Pension Plan Hard At Work Or Hardly Working?
Retirement planning is important to everyone who wants to remain self-reliant and does not want to work until they drop. In this post, I review the main ways of generating an income for our later years. We also look at why reviewing these arrangements regularly is essential before and after retirement. We end by offering a free, no obligation, review of your pension plan to help you structure your retirement planning.
What Is Retirement Planning?
Retirement is the transition from relying on your salary to alternative sources of income to meet your living expenses. Retirement planning is the process leading up to and beyond this transition.
A pension plan is a strategy for building sufficient assets to generate enough income to meet your living expenses. This normally takes years, if not decades. However, it is never too late to start, nor is it too early.
There are two phases in a pension plan, the accumulation phase and the post-retirement phase. The first phase is where you are setting aside some of your salary each month to build your retirement fund. This is where I imagine most readers will be. The second stage is where you use the assets to generate the income you need to live.
Both phases require different strategies. The accumulation stage is focused on growth. The post-retirement element is more concerned with capital preservation against inflation and income production.
Why Reviewing Your Retirement Plan Is The Right Thing To Do.
A pilot friend told me once that planes spend about 90% of their time in the air off course. But slight adjustments are being made by onboard computers and the flight crew to make sure the plane lands at the right airport and on time. If there were no corrections, it is highly likely the passengers would not arrive at their chosen destination.
Planning for your retirement should have reviews or you may find you have run out of time to save. This can have a permanent effect on your standard of living later in life.
Over the course of your working life, you will experience many changes. Your income will probably rise and with it your standard of living. You may marry, have children and take on other responsibilities. These changes will have an impact on where and when you want or can retire.
Factors outside your control will also change. Taxation and legislation, as well as economic factors, will influence your choices. New products and services will be created which may be more beneficial to you.
Charges and Risk
All forms of investment carry costs. For example, real estate has the cost of repairs and maintenance, insurance, taxes and agent fees. Building a retirement plan takes time and effort. To do it successfully you should aim to have several income sources at your chosen retirement date. For example:Real Estate – any debts to be repaid before retirement. Rental income and potential for capital growth.
Target to repay debts (mortgage) on the property before your selected retirement age. Real estate provides the potential for long term capital growth as well as regular income. The lack of liquidity means real estate can only be part of the solution. For more on Property Investments, see this recent post.
Investment portfolios are managed for growth during working life. As your selected retirement age nears, the growth should be locked in by taking less risk. This reduces the impact of an economic shock, like COVID, on your portfolio. Economic shocks have negative economic consequences on investments and with only a short time remaining in receipt of a salary you may never recover. For more information on portfolio construction, see this page.
If you run a small business, it may be possible to generate an income from it as a form of pension plan. This will depend on who runs the business and how successful the business is after your retirement. For many small businesses, the retirement of a key person needs to be handled with care. Long term planning should help retain many of the key clients and to put training in place for the new managers.
My Offer To You
When the markets turn as volatile and confusing as they have over these last few months, even the most patient investors may come to question the wisdom of the pension plan they’ve been following.
At AES, we’ve seen a lot of difficult markets come and go. And we can certainly empathize with people who find the current environment troublesome and disturbing. We’d like to help, if we can, and to that end, here’s what we offer:
A cup of coffee and a second opinion
By appointment, you’re welcome to sit with us for a while. We’ll ask you to briefly outline your financial goals – what your investment portfolio is intended to do for you.
Then we’ll review the portfolio for and with you.
If we think your investments continue to be well suited to your long-term goals – despite all the market turmoil – we’ll gladly tell you so and send you on your way.
If, on the other hand, we think some of your investments no longer fit with your goals, we’ll explain why, in plain English. And, if you like, we’ll recommend some alternatives.
Either way, the coffee is on us.