The Global Slowdown and impact on over 50s wealthPosted on: 12 November 2012 by Minesh Patel
Approaching retirement and worried about your finances? Minesh Patel looks at your options.
Before late 2007 there was a general optimism among those retiring or close to retirement, that after leaving work they would have a comfortable standard of living. How things have changed. Those now approaching retirement in the wake of the financial crisis are nervous about their futures the reasons for this are:
- Equities (stocks and shares fell dramatically between early 2008 and 2009) which impacted on the value of pensions and investments. This loss of value is very damaging for those taking pensions because they are faced with a lower pension fund unless they were fortunate to benefit from a final salary pension scheme. A lower pension fund gives you less to purchase a pension with. For many dividend income provided a supplement to their income, many companies such as BP have reduced their dividends.
- Annuity rates have fallen since 2007 and the decline looks set to continue with the latest EU directive to harmonise annuity rates between men and women. It has been well documented that that quantitative easing has been highly damaging for those wanting to retire because the gilt yield upon which annuity rates are based has fallen due to quantitative easing.
- House prices in many parts of the UK have not increased and it is taking a long time for property to sell and then at a reduced price an issue for those looking to use equity in their property for retirement.
- Interest rates are very low and savings rates on the whole are lower than inflation, a negative real return.
- Unemployment and the inevitable negative impacts which it causes.
However, I now see people in the latter part of their careers approaching retirement with a different perspective, optimism has been replaced by realism - the future is positive, but there will be compromises involved. Some of the tips I have gained from advising those enjoying a successful retirement are:
Do not retire prematurely and plan to work for longer giving you more time to accumulate funds for retirement. Stagger your retirement, go part time first and see how you deal with the lower income and more time? Keep investing in skills required by the job market many employers value experience and application above pure academic ability.
Diversify the way in which your retirement income is generated , a successful plan is one where income is generated from a pensions private and state, ISAs, investment income, income from property (Buy to Let Investments ) , on-going work and savings. I am a strong advocate of pensions and investing in equity ISAs which have the potential of growth in excess of bank or building society returns. This can be used to create tax free income when required.
Record your expenditure and this will give you an amount you need in retirement remember many expenses will fall away such as travelling to work.
Update your Will and Lasting Powers of Attorney to ensure there is clear direction on death and during your lifetime if illness or disability prevents you from making decisions.
In summary remain positive but be realistic when planning for your retirement.
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