Bring me sunshine in my pension - by not betting it all on the market
Wondering what to do with the freedom to use your retirement funds how you want? Start by asking how many risks you should take
Saving and investing is a waste of time and money unless you have a good idea how you are going to spend your cash. Sad to say, that’s not an easy decision for those of us aiming to enjoy the newish pension freedoms, which allow folk aged 55 and over to do what we want with our retirement funds. Awkward questions include how long have you got, how much is enough, and what is the alternative?
Few of us know when we will die, what future rates of inflation will be or whether buying a guaranteed income for life — in the form of an annuity — might beat remaining invested in the stock market for the rest of our allotted span. Fortunately, this doesn’t have to be an either/or choice. You can have a bit of both — buying an annuity to provide income that is absolutely necessary, while also aiming for more speculative returns from what is known as “income drawdown”.
Anyone tempted to take the latter course through pension freedoms should be aware that the right to choose includes the right to make mistakes — often with irreplaceable capital. Unlike people who are still at work, pensioners with income drawdown schemes that go wrong won’t be able to seek a pay rise to make good their losses on the stock market.
…… Alan Steel told me: “You will often hear that the life expectancy of a 60-year-old man is a further 18.6 years, which isn’t a very useful way to look at it. But if you say that he has at least a 50:50 chance of living beyond 78-and-a-bit, he might start to look at his financial plans differently.
“If you remind him that he has an almost 50% chance of living to 80, and if he’s married to a woman five years younger, you explain that she has a 50% chance of outliving him by more than 15 years, he might again alter his thinking.
“Nobody, when questioned with their partner sitting next to them, will say that they don’t care what happens after they’re dead.”
Quote courtesy of the Sunday Times
Sunday 13 October 2019