Pension Advice – Make your pension pot last

In April this year guidance was issued alongside radical pension changes as part of the 2014 budget. This included the option for savers to access their pension fund at any time after the age of 55. In addition, it was announced that there will also be guidance on life expectancy. So how can you make your pension pot last the distance?

You need to decide not only how long your pension pot will last, but how long your life expectancy is. It’s a bit like asking ‘how long is a piece of string’ but likelihood of how long you will live for still needs to be considered.

According to pensions minister Steve Webb, at the point of retirement everyone should be given an idea of life expectancy. These figures have been researched and analysed today more than they have been any time previously, and include lifespans for males and females taking into account location, lifestyle, health and other factors that can affect life expectancy. For example, a female living in Scotland will live on average two years less than a female living in the South of England. Similarly a male living in the North of England will live a year and a half less than someone living in the South West.

These are, of course, only averages and these statistics can be unreliable later on when new healthcare treatments are available. Even so, if you conform to the average you can consider building a plan to make your pension pot last as long as you will.

In order to effectively plan ahead, you will need to work out what income you will need. You need to identify your fixed costs and work out how much money you need to live frugally as well as comfortably. This will allow you to calculate how to spread your savings so that you don’t run out of funds when you most need it. You will also need to factor in the rising cost of living – don’t work out your budget on today’s figures because in 20 years time this will be unrealistic.

Start of with a high expenditure as you first retire, as you will be healthy and fit enough to travel and continue with activities that cost money. For example, health club or golf membership, holidays, the cost of running a car etc are all things that you are less likely to need when you are in your 80s or 90s. Your needs will start to wane and your health may deteriorate.

Another thing to consider is that if you keep your money in investments and make regular withdrawals, you will have different amounts of money at different stages of your retirement. You need to work out how to reduce risk and make realistic estimates of expected growth rates for different asset classes such as bonds, cash, and shares.

We can advise you on whether to keep your money as cash where returns are lower but less risky, or invest in something with a greater chance of a good return but with a higher risk. You could consider an annuity (which have received very bad press of late), which is an insurance product that converts a pension fund into a lifetime income with a fixed rate. However, you are no longer in control of your funds.

Different products and investments can be combined to help you achieve differing income needs and desires.

We offer a financial advisory service, so we can input your information into a cash flow forecaster and help you to work out how your income needs may change over time, and change with inflation and investment returns.

For more information and advice, contact Derngate Wealth today.

 

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