Preparing for the future: All you need to know about retirement investing
Saving and planning for retirement is one of those things in life that we often let pass us by. When we’re young, it’s easy to think that retirement is a long way away. However, life can sneak up on you, and before you know it, there’s a pressing need to do something about the future and put some money away for your retirement before it’s too late.
According to figures from the government, almost 12 million people are not saving enough for their future in the UK, potentially leaving themselves with a quality of life lower than desired when they retire.
Thankfully, the last couple of years have gone a long way to change what has been something of an issue for years. The government’s early pension changes that saw companies required to auto-enrol their employees on a pension scheme came into full effect last year, and it made younger people in particular more aware of their need to save for the future than ever before.
However, as people become more and more aware of the need to save for the future, the government has also made it possible for them to look at alternatives to the traditional pension scheme. With higher returns possible in other assets and investments, it’s always best to make sure you weigh up your options and choose the best one for making sure your money works for you in the future.
New pension reforms due to come into play on April 6th will grant savers far better choice and flexibility than they have enjoyed in the past. From the age of 55 onwards, those with pension savings will have full access to their money. No longer will you be given one chance to take a lump sum with just 25 per cent tax free. From April, you will be able to dip in as you wish with the same tax restrictions applying. It means you are in control of your own money.
This takes away the need to buy an annuity to support you in later life, and gives you the chance to take your money out of a pension pot and invest it elsewhere in an alternative asset, where you can enjoy far better levels of return and give yourself a better fund for your future. Careful retirement investing with a diverse and balanced portfolio can bring you a healthy profit that will stand you in good stead down the line.
How much should I invest
Again, this is a question that comes with a relatively simple answer – it’s always best to invest as much as you can without incurring tax penalties. After all, these only eat away at your potential income.
At present (as of April 2015) you will be able to invest up to £15,240 per year in ISAs, for example without being hit by taxes. But remember, this can change over time, and it’s important to keep touch with regulations year after year to see if you need to change your strategy and steer clear of being hit by taxes.
Speaking to a financial advisor can also help you to decide how much to put away. Talk to them about how much you would ideally have per year in retirement, and they can advise you on what your pension pot would need to be worth to achieve this. Then, based on your desired investment assets, you can make an informed decision about how much you need to feed into your savings.
ISAs are an incredibly tax efficient way to invest your money for the future, and they offer you the chance to build up a sizeable fund through an alternative method to pensions and annuities.
ISAs are far more flexible than traditional pension schemes, offering open access to your savings at all times. New ISAs will also permit you to take out a lump sum if you need it for something and then repay it in the same year without the repayment counting towards your ISA limit, which makes them an attractive proposition.
ISAs may not be as lucrative as buy-to-let, what with an annual interest rate of up to three per cent, but the fact you are able to save up to £15,240 per year in these accounts without having to pay tax (remember to calculate income tax on any buy-to-let investment), means you will be able to keep more of your money. They also offer a far simpler way to save. For those who would rather have a hands-off approach to retirement income, ISAs offer a way to put money aside that is not complicated and easy.
Shares are probably the most intimidating of all investment options. After all, we probably think of stock exchanges and trading floors, filled with knowledge and investors who really know what they’re doing. For someone with limited knowledge of shares, it can be a very confusing market to breach, which will mean many choosing to steer clear. However, it doesn’t need to be all that complicated to see success.
There are so many types of investments in shares out there, but the best way to invest in shares for those who want an easy solution is to look towards multi-manager funds, which own a wide range of shares, bonds and other income-producing assets on their own. You simply buy into these funds and generally let your money do the rest, as they are very low maintenance, making them ideal for people without a financial background.
The fact that these funds come with a diverse range of assets means they are generally more secure. Sure, they may not offer the sorts of high returns you can get in the more focussed funds, but they protect against falls in certain sectors by spreading your money around. And the returns are not bad either. For something you need very little contact with, multi-manager funds can bring in between four and six per cent in returns.