The silent pension killer: Don't let it ruin your retirement
Many things are likely to be on your mind as you near retirement
What will I do with all that spare time, how many holidays can I have, will work give me that gold watch?
Something that will probably not be at the forefront of your mind is your pension investment portfolio – you know it’s there, steadily growing until you need it, right?
The best answer is, hopefully. As you get closer to your chosen retirement date – ideally at least five years away – you need to start to de-risk your investment portfolio. This means moving out of higher risk stocks and shares investments, into things like government bonds.
If you don’t do this, you could have a very nasty shock when you eventually get round to looking at your pension because stock market falls, like those in 2007, can have serious consequences for the unprepared.
Another common and costly mistake made by those approaching retirement, particularly expatriates, is to take the advice of an unscrupulous offshore salesman to invest in any number of high risk investment strategies.
Often these high risk strategies will be sold with the promise of “investment guarantees” and “capital protection”. But any decent financial adviser or investment manager will never guarantee you a return as they know they can’t – so if you hear these words, don’t invest.
Time and again, retirement portfolios are left decimated by just one or two poor investment decisions made late on in people’s careers. Worse, there is no time left to make up the lost money.
And that isn’t all. As you go through your retirement you also need to watch out for the silent pension killer, inflation.
Many people think that by leaving their money in cash it will be safe because there is no risk. However, what those people don’t realise is that by doing this the real value of that money will continue to fall over time, particularly over a long retirement.
For example, someone retiring at age 55 with a pension pot of £500,000 and taking a retirement income of £17,500 per year, would run out of money before their 80th birthday even if inflation was at just 3%. To put this into context the average pension pot in the UK at retirement is around £35,000.