The investors who can't wait for the storm to blow over

If you're nearing retirement, it's no comfort that returns on shares and rates on savings accounts will recover one day. Kate Hughes looks at the options for those who need to maximise their money now

We've been told not to panic about tumbling stock markets – to sit tight, to play the waiting game. With savings rates trivial – and expected to get worse after Thursday's base rate cut from 2 to 1.5 per cent – the advice again is usually to hang in there.

But what if you don't have time to wait? Maximising your retirement income if you only have a few working and investment years left can be an uphill struggle in times like these, because you need your money to work hard in the short to medium term.

Until recently, the assumption would have been that your everyday savings were secure. There have been horror stories, like the collapse of the Icelandic banks, but remember that money held in any bank trading in the UK under the regulation of the Financial Services Authority is protected. In the event of a banking failure, up to £50,000 of an individual's savings are guaranteed through the Financial Services Compensation Scheme (FSCS). If you have more than £50,000 in savings and investments with one bank or building society, consider distributing it among a number of them so you are fully protected. Be aware, though, that if different banks are part of the same financial group – Halifax and Bank of Scotland, say – then that £50,000 cap may still apply.

With all this in mind, you can pursue the best deals for your circumstances – particularly the degree of risk you are prepared to take for your rewards, and how long you plan to keep your money invested.

"In the current climate, cash is king," says Kevin Mountford of price-comparison site "But maximising it is another question. You can still get good deals against the Bank of England base rate but really meaningful ones are difficult. Be proactive. Keep an eye on the rates on your savings, especially headline interest offers on instant access accounts as these can drop dramatically overnight, and move your money around where necessary."

For short-term or flexible savings, high-street instant access rates certainly aren't anything special, but if that is what you need then ING Direct currently offers a very reasonable 5 per cent. For the security of a fixed rate of interest and the guarantee of a cash bond, HiSAVE offers a one-year deal of 4.65 per cent for deposits of £1,000 or more.

Tory leader David Cameron recently proposed the abolition of income tax on all savings for basic-rate payers. But in the meantime, you don't want whatever half-decent savings rate you can muster to be further eroded by tax, says Alex Pegley of independent financial adviser (IFA) Calculis. "The first thing anyone should do with their cash, regardless of their age, is use their individual savings account allowance. "Given that they are tax-free and some of the interest rates are fixed, ISAs are the obvious first stop."

Nationwide's two-year fixed-rate ISA offers 4 per cent a year in interest – the equivalent of a taxable rate of 4.8 per cent for a basic-rate taxpayer. In return for that security, though, you are locked into the two-year term.

"Those looking to maximise the value of the cash they save between now and retirement, without exposing it to any significant risk, should look carefully at National Savings & Investments (NS&I) index-linked savings certificates," adds Mr Pegley. "These offer the equivalent interest rate to the retail prices index (RPI) plus a fixed percentage over a specific period. Bear in mind, though, that inflation is expected to drop this year, so your interest rate will fall, at least in the short term."

NS&I has two index-linked savings certificates for lump-sum investments of £100 or more: a three- and a five- year product that both offer RPI (currently 3 per cent) plus 1 per cent.

For those approaching retirement and looking to draw a steady income stream from their investment portfolio, asset allocation is vital, says Darius McDermott of IFA Chelsea Financial Services. "A standard allocation for a cautious investor in this age group is usually 50 per cent bonds, 20 per cent UK equities, 5 per cent international equities, 5 per cent property funds and 20 per cent in cash.

"They should take a defensive position on equities, continuing to ease their way out of this asset class This may be hard to swallow for investors who have lost in the recent market volatility, but it will help reduce risk in the portfolio," he says.

As you reduce your equities, your exposure to corporate and government bonds should increase, to help safeguard your portfolio. Corporate bonds are the investment flavour of the month thanks to their eye-catching returns in a low-interest-rate world. The Henderson Strategic Bond, for example, is not untypical with its current pay rate of 8.8 per cent a year.

But a big influence on your retirement income is what you do with your pension pot at retirement.

If you're about to stop work, your pension won't be going as far as it once did because of falling annuity rates. Shopping around for the best deal is crucial as rates can vary by as much as 25 per cent, which will make a big difference to your monthly income. If you are due to retire in the coming 12 months, buying your annuity now could secure you a better rate.

Should a higher monthly income be your priority in retirement, then experts advise that you forgo taking part of your pension fund as a lump sum. Under Revenue & Customs rules, you are allowed to draw up to a quarter of your personal pension as cash tax-free. But for people with larger pension pots and no immediate need for an income – they may continue working part-time, for instance – then the option exists to keep their pot invested and delay taking any benefits until the age of 75.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

    Everyone is talking about The Trews

    Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
    'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

    'Queer saint' who bankrolled artworld giants

    British culture owes a huge debt to Peter Watson, says Michael Prodger
    Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

    Pushkin Prizes brings countries together

    Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
    14 best kids' hoodies

    14 best kids' hoodies

    Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
    Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

    The acceptable face of the Emirates

    Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk