Planning for your retirement needs serious consideration and financial planning, this should not be left until the last minute.
These financial decisions will be in place for the rest of your life which could be up to thirty to forty years, in some cases even longer.
You will need to consider the following factors
- Level of income required to maintain your lifestyle
- Amount of guaranteed income
- Spouses independence income
- Effect of inflation
- State of health
Factors such as your investment portfolio need to be reviewed depending upon the retirement income and product you intend to use.
Pension annuities provide a guaranteed income for life; however this is not as straightforward as it seems.
You will need to decide if you wish your income to increase each year and be payable to a dependant in the event of your death and if this means a reduction in the level of income. All of these choices will impact the level of income that you will receive.
Annuities can be underwritten based on your health (enhanced annuities) and you should always compare the market to maximise the level of income you may receive.
If an annuity is appropriate for you it is generally advisable that you should reduce the investment risk within your portfolio as you approach retirement. This will negate large investment fluctuations as you draw near to retirement.
As annuity rates are near all-time lows, some clients prefer to leave their capital invested and draw a regular income, this is known as drawdown. This enables you to retain flexibility over your pension options and can allow you to delay purchasing an annuity until you feel that an annuity provides value for money.
The drawback to having flexibility is that your Pension fund remains invested. This means that if investment returns are poor or there is a substantial fall in the value of your investments, then there is the chance that your fund could deplete prior to your life expectancy.
At Howard Wright we provide a range of risk focused actively managed investment portfolios designed to assist our clients to achieve their income objectives in retirement. If drawdown is suitable for you, then there is usually no need to reduce the level of investment risk you are taking prior to your retirement. Further considerations may need to be made if you intend to withdraw a tax-free cash lump sum.
Your existing arrangements need to be reviewed to ensure that they offer drawdown, if this is to be an option to be considered.
Retirement options Report
We have developed our own retirement options report, which covers all of the above issues in detail with illustrations bespoke to your personal circumstances. Your adviser can then recommend and implement a suitable product or range of products, which is targeted to meet your objectives.
The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.
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