How to Invest During Retirement to Protect Your Pension Fund
Planning for retirement doesn’t end at the point of retirement. For many, investing part of their pension or surplus income after retirement can be a strategic way to safeguard and even enhance their retirement finances. Here’s a guide on how to manage your finances effectively in retirement, including investment options and considerations.
Should You Invest During Retirement?
If you have a pension fund, you’ve already been investing, whether you realized it or not. Over the years, these investments have accumulated value, providing you with income after you retire. In retirement, however, you have options. Some retirees choose to keep part of their pension funds invested, while others may invest part of their income or a tax-free lump sum to cover future needs. Understanding these options is key to making the most of your finances in retirement.
Finding the Best Financial Adviser Near You
Seeking guidance from a certified financial adviser is essential to ensure that any investments align with your financial goals and risk tolerance. Whether you’re looking for an independent adviser to help you choose suitable investments or want to understand fees involved, finding a financial adviser near you who specializes in retirement planning can make a big difference.
Types of Retirement Investments
There are generally two types of investment approaches in retirement:
- Fund-based investment through drawdown: If you take a drawdown approach, your pension remains invested in funds designed to grow over time. With the help of a financial adviser, you can select top-performing funds that align with your objectives and protection needs.
- Independent investment of surplus income: Alternatively, you might choose to invest a portion of your surplus income or tax-free lump sum into assets like bonds, equities, or even property. This route may suit those who want to increase their income over time or preserve wealth for future generations.
How to Invest Using a Drawdown Scheme
With a drawdown scheme, retirees often keep their pension pot invested in the stock market, drawing income as needed. While this can provide income over time, it’s essential to consider the risks. Markets fluctuate, and significant losses can affect the sustainability of your pension income. A financial adviser will help you select assets that offer stable growth, helping you avoid excessive exposure to market downturns.
How to Invest Pension Income
If you have surplus income in retirement, you may consider investing a portion of it to create a diversified portfolio. You can do this by spreading investments across asset classes like equities, bonds, or commodities. Before doing so, consulting with an independent adviser is recommended to assess your risk tolerance and develop a balanced investment strategy.
Why Drawdown Schemes May Not Always Be Ideal
With a drawdown scheme, it’s generally advised to withdraw only as much income as you need, since extra income may incur tax. In contrast, if you take your pension as an annuity, you receive a set income that’s also taxed, but you can choose to invest any surplus income without worrying about the effects on your drawdown balance. An adviser can provide insight into which approach best fits your financial situation.
Key Steps for Investing in Retirement
- Identify Your Investment Goals
Determine why you want to invest. Is it to boost future income, fund a specific goal, or leave a legacy? Understanding your objectives will help you choose the best investment strategy. Discussing these goals with a certified financial adviser can help clarify the right approach. - Assess Your Risk Tolerance
Every investment carries risk, and it’s essential to understand your comfort level with market fluctuations. A financial adviser can help assess your risk appetite, guiding you toward investments that suit your profile while factoring in potential inflationary risks. - Build a Diversified Portfolio
A well-rounded portfolio includes a mix of high, medium, and low-risk assets. For example, equities offer growth potential, while bonds provide a more stable income stream. A balanced approach can protect your portfolio against market volatility, and a certified adviser can help ensure you select the best options for your goals. - Seek Independent Financial Advice
Working with an independent adviser gives you access to unbiased recommendations, as they are not tied to any specific financial products. An independent financial adviser can provide a tailored service, choosing the best funds and investments from across the market to suit your unique circumstances. - Plan for Tax-efficient Withdrawals
As you draw on your investments, consider tax implications. Capital Gains Tax (CGT) on investment growth can be more favorable than income tax rates on pension withdrawals. Discussing tax-efficient withdrawal strategies with an adviser can help you minimize taxes on your retirement income.
Maximizing Your Retirement Savings
Investing in retirement, when done thoughtfully, can significantly improve your financial stability. Whether through careful drawdown management or additional investments, these strategies require informed decision-making. A certified financial adviser can guide you through the process, helping you find solutions that fit your needs, maximize your pension, and make the most of your retirement savings.
Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom. Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand. All rates are correct as of 16 October 2024.
