How you can finance an enjoyable retirement

With a bit of careful planning, pensioners can have the time of their lives, reports Rob Griffin

Janette and Andrew Rodger are enjoying a comfortable retirement. Their days are filled with trips to health clubs and rounds on the golf course, while holidays are spent on luxury cruises. It's a well-deserved lifestyle after years of working hard to put money away for their future.

The couple, both 68, supplemented their company pensions with a wide variety of investments. Their portfolio has exposure to everything from North American companies to European growth stocks and special situations.

"We are having a ball," says Janette. "We prepared as much as we could and had a good financial adviser. The investments that he put us in have all done fairly well so we're comfortable."

Their philosophy was to ensure their basic costs of living were covered by their pensions – they have five company pensions between them – with any excess money tucked away in a variety of investments that could be called upon to help maintain their standard of living in the future.

This careful planning has allowed the couple, who have two sons, to refurbish their four-bedroom house in Glasgow, go on regular cruises and pursue their hobbies. Janette is a regular visitor to health clubs and plays the piano while Andrew has a passion for golf.

"It's important that people get into schemes early because they will form the basis of their retirement and everything else is icing on the cake," she adds.

"As you get that bit older and you have more money to spread around, so it's also important to invest wisely."

The Rodgers are proof that it's possible to enjoy a decent retirement as long as you plan early and invest a decent proportion of your annual salary. However, millions of people are facing the prospect of a very different type of retirement – one that is run very much on a budget.

So what should the state of retirement today be teaching us? We consulted a string of independent financial advisers, pension experts and industry observers to draw up a list of lessons for our retirement well-being.

Lesson one: Start early – and ensure you're saving enough

The earlier you start, the longer your investments have to work.

Realistically, you need to be looking at a 40-year time frame to build up a decent retirement pot so that means starting in your 20s, says Tom McPhail, head of pensions research at Hargreaves Lansdown, who points out that those starting later in life will have to save substantially more to catch up.

"There's no substitute for saving an adequate amount," he says.

"If you don't put enough in, you won't get enough out – but that's a difficult message for people to take on board because it means having to make some hard choices about spending patterns and living standards today."

Very broadly, a general rule of thumb is that you should be putting away half your age – as a percentage of your salary – into a pension scheme. For example, those in their 30s should be tucking away at least 15 per cent, rising to 20 per cent after they hit the big 4-0.

Lesson two: Know what you have in place – and consolidate

You may have accumulated a number of different pension pots over the years from various employers, so go through the filing cabinets and pull all the details together. It may be worth your while, for example, consolidating them.

Bringing pensions under one roof will make it easier for you to manage – and give you a clearer idea of the value of your overall retirement pot – but you'll need to check the details of what arrangements are in place and watch out for any penalties that may apply.

Lesson three: Regularly review your investments

Pay attention to the financial foundations you have in place and revisit those decisions at least every year.

Don't put money into pension funds and forget about it – before coming back to it 10 years later and wondering why your investments haven't performed as well as you'd expected.

Neil Mumford of Milestone Wealth Management suggests people sit down with a trusted financial adviser to discuss their plans.

"People say pensions are bad but that's not the case – it's the investments held by them that may have performed poorly," he says. "It's particularly important for people to review their holdings when they are 10 years away from retirement so as to ensure they are aware of what they will receive and address any expected shortfalls."

Lesson four: Understand your attitude to risk

You also need to make sure your pensions and investments meet your needs – and your attitude towards risk.

The fact is that you will need to take an element of risk in order to generate an above-inflation return, says Carl Melvin, managing director of Affluent Financial Planning.

"It depends what reward you are seeking," he says. "If you want a high return you can't get that by sticking your money under the bed. Therefore, make sure that the returns you are seeking are consistent with the risks you take."

Generally, if you are in your 20s and 30s, you can afford to take more risk where potential gains can be higher.

Lesson five: Embrace diversification

If there's one thing that the last few years have told us, it's that diversification is one of the keys to investment success.

Regardless of how attractive a particular area may seem, resist the temptation to put everything into it as you could lose the lot should the unexpected happen. Have a spread of asset class and geographical exposure, so you are protected if one area should go down.

People shouldn't just consider pensions at the exclusion of other retirement solutions, points out Neil Mumford of Milestone Wealth Management. While they have clear tax benefits, they are not the only investment products that can be used to generate an income.

"We look to build up all types of investments for clients in order to provide a tax-efficient income for them in retirement," he says. "It's also important that they have access to capital as well which isn't possible if they have invested it into a pension fund."

Lesson six: Join your employer's pension scheme

If your employer is offering you a pension contribution, then make sure you take advantage of it because it's free money and will help bolster your retirement pot, advises Tom McPhail at Hargreaves Lansdown.

"You need to be saving upwards of 10 per cent of your earnings – and between 15 and 20 per cent if you want a good standard of living," he says. "If your employer can share the strain by contributing five per cent or more of your salary, you'd be crazy not to take it up."

Lesson seven: Continue investing in the bad times

The natural inclination is to stop investing when the economic backdrop is less than favourable, but you should fight against that and continue putting money away, according to Carl Melvin at Affluent Financial Planning.

"If the share price goes down, this represents a discount and enables you to buy more shares – and units in investment funds – cheaper," he explains. "When the price recovers, those cheaply bought units will deliver strong gains."

Living on less: Shrinking incomes take their toll

Recent statistics suggest that the income for those in retirement is falling.

People retiring in 2012 expect to live on an average of £15,500-a-year – more than £1,000 (six per cent) less than those who stopped working last year, according to research from Prudential.

The company's annual study also reveals that expected annual retirement incomes have dropped by more than 16 per cent over the last five years.

Retirees back in 2008 had the prospect of a total annual income of £18,600 – over £3,000 more than those planning to follow suit this year.

It also means that more than a third (38 per cent) of people due to retire this year are cancelling their plans with a significant proportion (22 per cent) of these are doing so because they simply can't afford to stop working, points out the study.

Vince Smith-Hughes, Prudential's retirement income expert, blames the dramatic fall in retirement income on a combination of the credit crunch, banking crisis, recession and concerns over the eurozone, but he insists that people can still do plenty to help improve their prospects in later years.

"It has never been a more important time to save into a pension as the longer savings are invested, the greater the opportunity they will have to grow," he says. "However, even those who are retiring this year could make their funds generate better incomes by consulting a financial adviser."

Independent Partners: 10 top tips for retirement. Get your free guide here

News
Ian Thorpe had Rio 2016 in his sights
people
Sport
world cup 2014A history of the third-place play-offs
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Sport
The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice