For anyone approaching (or simply thinking about) retirement, a number one concern is how to best invest their money. The options can be daunting. The age at which you’re at now will greatly affect how is best to invest your money from here on too. So keep this in mind as you read about the available options.
If you’re in your 20s, using an ISA account to manage any saved cash is vital to making the most of current funds. Retirement can seem like a long way off, but if you have a proper salary it’s not unreasonable to take a serious approach to your future however distant. Of course, at this stage make sure to focus on clearing debts (including student debts) first.
To build a nest egg that’s big enough to see you comfortably through retirement, which could last 30 years onwards, you’ll need the growth that only stocks cane really provide. The adage of ‘shares outperforming savings accounts’ is ultimately true.
Investing in stocks
Stocks have a superior return over long haul investment, and for those whose retirement is over 20 years off, financial advisers suggest having at least ¾ of their portfolios in stock funds and stocks. As with any investment, there are risks involved with stocks and steep downturns can leave hair-raising moments. For a less volatile investment, holding around 70% in stock and 30% in bonds will let you capture the long-term growth of stocks yet shelter investments to an extent during any market downturns.
Investing in pensions
Pensions are another sensible form of investment for those building their retirement funds, although ISA’s are productive when young, there are real advantages of putting your extra cash into a pension scheme instead. Pension contributions are taken before your tax has been paid with a personal pension provider being able to claim tax back on contributions – so for every £100 you contribute, £125 can be claimed if you’re on the Basic Rate as a taxpayer. Although an ISA carried no investment risk whatsoever, pensions can usually be picked at lower risks if needed.
With a pension pot investment you will not be able to touch this money at all until you are over the age of 55. With an ISA, the money is available to access but is not necessarily a good thing, as it can be tempting to spend this pot in times of financial difficulty, not being able to replace it anytime soon.
If you’re investing in a pension, you can also choose to benefit from an annuity which will guarantee your income for life. It is the only way of securing your pension investment is guaranteed, but does come with the risk that should you pass away before using all your pension pot the annuity provider will keep your funds, as opposed to them being passed to family or loved ones. It is possible to take out a joint annuity to give your remaining pension investment to your partner when you die.
Stocks, savings accounts and pension schemes all have their place in retirement investment, so if you have the income to split between the different options this can only increase your options when you retire.