Retirement Investing: Getting the Strategy Right…

Everything changed in 2015.

That was more than 10 years ago, but lots of people haven’t changed their thinking.

Before pension reforms of 2015 a common path was to buy a regular income (an annuity): the pension investments were swapped for a guaranteed income – job done and relief of getting there!

Not quite. The whole point of the pension reforms was to provide more choice and better pension outcomes.

An annuity is less flexible and usually dies with a surviving spouse, which isn’t always a favourable outcome having built up a large pension pot over many years.

Retirement saving aren’t just pensions. They might be property rental income or ISA investments or other savings build up over a lifetime.

After decades of saving, the savings now need to last for decades!

What now

You’re moving from the savings stage to the spending stage of the investment journey.

You’ve been accumulating savings, saving for your future and now it’s time to turn on the tap and rather than adding to the investments, it is time to draw down on them.

When you were accumulating investments (saving), you had the benefit of time and compound growth (Albert Einstein’s 8th Wonder of the World, and the long-term growth on the growth!).

That investment strategy had time to recover and benefit from short-term market dips, but that same strategy introduces different risks when you start drawing on the investments.

This includes sequencing risk; a ‘down’ period at the start of long-term withdrawals can have a detrimental impact on how long the savings could last!

That is why many opt for the “safe” option and look for cash savings with certainty of returns. The problem is that this introduces inflation risk; the quiet killer of the future value of savings. If the return is less than inflation, you’ll be buying less in the future compared to what you can buy today with that money, which is why some retirees struggle to pay the same bills after twenty years of inflation.

How long does the pot need to last?

If only we knew, it would be easy to plan for - But we don’t.

At age 65 the average life expectancy is 85 for a man and 88 for a lady (ONS), and there is a 25% likelihood of reaching age 92 and 94 respectively. Not that I want to live for ever, but if I was 65, I’d plan to have the 10% likelihood of making 96 and 98 respectively.

That means, on average the savings need to last for at least 2 decades (20 years). Planning for at least 30 years and beyond is far more prudent.

Investing during the “spending” phase

Now that we understand that this is more like the second half of the journey, rather than the end, you’ll appreciate the strategy will need to change. This is just like what a long-distance runner does during the course of a race.

Your overall appetite for risk may have changed but that doesn’t mean that all the investments need to have the same level of risk.

Having an investment strategy in retirement that provides comfort to fund your short-term needs, whilst also growing over the long-term, to maintain your purchasing power and help the savings outlive you, is essential.

We blend the different assets at our disposal, across the different savings wrappers to deliver tax efficient and sustainable outcome that are tailored and bespoke to each investor.

The reality is that the investment strategy evolves over time and will progress towards this strategy as you move from the savings phase to the spending phase.

Second chances with retirement savings are smaller and fewer, compared to when you are building up your savings. This is why it is so important to get it right.

Being confident in your future comes from understanding how much you might need, building in a safety net and contingencies, and building an investment strategy tailored to you. We are there every step of the way.