23rd February 2015 at 4:31pm
From April, you’ll have more freedom in how you take your pension – and given we’re all likely to be funding longer retirements this new flexibility is great news. If, like me, you plan to stay invested and take an income, you should think about how you’re invested – especially in the short term.
Retirement – The early years
Research shows that how you invest, particularly in the early years of your retirement, can ‘make or break’ how long your pension pot lasts. In simple terms, this is because it’s hard for the investments to ‘catch up’ again if you take an income out while markets are falling.
In retirement you’ve probably more than one aim. On one hand, you need to take money out to live on in the short term. But on the other, you want to grow your money so it lasts you over the long term. These goals need different approaches.
So what’s the answer?
It’s helpful to think about your retirement money in separate ‘pots’.
- It may be necessary to take some risk with the pot of money that’s for the longer term. This can help it last through your retirement.
- But the pot of money that you’ll use for your short term income doesn’t have time to recover from any falls. So you should think carefully about how much risk you take with it.
Personally in retirement I plan to invest to get the best long term growth in my money, but I know I’ll need to be smart. As I’ll be taking an income, I need to choose a solution that helps me meet both my long and short term aims.
I’ve looked at this subject in a lot more detail in one of my recent blogs ‘Are you risking how long your pension will last?