How To Build A Successful Retirement

Posted on: 16 February 2009 by Gareth Hargreaves

To secure the future you dream of in retirement, you’ll have to avoid some serious and all too common planning mistakes.


Early retirement appears to be a thing of the past. One in four workers say they can no longer afford to call it a day when they had planned because of the recession, which has hammered investment and pension returns, interest rates and property prices.

But the problems faced by those on the verge of retirement today are only a taste of things to come for future generations, pensions experts warn.

With more people living longer - increasing the strain on pension and health provision - they say a long and comfortable retirement for everyone looks less likely.

It’s time to face some unpalatable truths - and take action.

Work Longer

More than one in 10 adults expect to have to delay their retirement by as much as five years, according to insurer Life Trust.

Its Cost of Retirement survey of 2,160 working adults last December found 8% said they would probably have to postpone retirement for two to four years beyond their expected retirement date while 3% said they would have to work one year longer.

The Life Trust report also found 41% of over-55s would be delaying their retirement.

“Retiring early is a privilege that was, until very recently, an ambition for many people,” says Andy Briscoe, chief executive at Life Trust.

“But the worsening economic conditions coupled with increasing life spans mean this is now something that fewer people can afford.

“There is all the more reason for people to understand the true cost of retirement and look at all the options available to them for financing their later years.”

As well as maintaining your earning power and the potential to continue saving, working beyond your normal - and even State - retirement age can boost your eventual retirement income.

Workers who defer taking the State pension - at present 60 for women and 65 for men - can build up extra income for later life or a taxable lump sum payment.

The State pension age is set to start rising gradually from April 2010. Deferring taking the pension could be worth considering, particularly if you are able to work beyond the State pension age.

Save Harder

Workers with time on their side are being urged to save more to counter the effects of falling interest rates and investment returns. And in uncertain times it pays for savers to have a good spread of investments in different asset classes - and avoid the risk of putting all their cash with one savings provider.

“Despite difficult times in the stock market, investors with at least 15 to 20 years before they want to retire should have some equity exposure,” says Adrian Kidd, independent adviser with Unleash Advice Partnership in Lee, south-east London.

“Cash returns are low and equities should offer growth over the long term, but it is vital that investors have a balanced portfolio, including cash, bonds and other asset classes.”

More workers are aware of the need to save for a comfortable retirement, particularly as it appears less likely that the State will be able to provide adequate support.

According to insurer Scottish Widows, a retired man aged 65 would need a pension fund of £325,000 to buy an inflation-linked annuity of £15,000.

A 35-year-old man would have to save £475 a month into a pension, which would be bumped up to about £600 with tax relief, to get the equivalent pension at 65. This assumes fund growth of 7% a year (which some might regard as optimistic) and 1% annual charges.

Take Cover

According to the Office for National Statistics, men aged 65 can expect to live on average until they are at least 82 while women of 65 can expect to live until at least 84.

Yet 10% of people are not even certain they have enough money to last until the age of 70 while more than 40% will run out of retirement funds by the time they reach 85, according to Lincoln Financial Group, the investment and pension specialist.

With longevity increasing dramatically, the outlook is worrying. More than ever, as savings rates fall, older people must take action to boost their retirement income.

Get specialist independent financial advice, where necessary, and if you have a personal pension fund ensure you shop around under the open market option for the best possible annuity deal.

Annuity rates have slumped as interest rates have fallen, but pension savers should remember that they are not required to accept the annuity offered by their pension provider.

Brokers such as The Annuity Bureau and Annuity Direct can search the market and boost your retirement income by up to 30%, simply by choosing the best provider.

It is now possible to take out cover in case you live to a ripe old age. Life Trust's Longevity Income Plan covers people from 75 for up to 20 years. The policy can be used to supplement existing pension arrangements for couples where only one person has a good pension.

It is aimed mainly at women worried about outliving their husband and having to survive on a reduced income. According to Life Trust, a woman aged 60 who invested £25,000 would receive an annual income of £3,270 once she reached 75, increasing to £5,770 by the time she turned 95, at which point payments would stop. This assumes average annual investment growth of 5%.

She would receive less if growth was lower and if she died before 95 any capital would be kept by Life Trust. Such plans are complex and you should seek independent financial advice first.

What are you doing to safeguard your retirement? Do you have any hints or tips to pass on to 50connect readers?

If so, let us know by leaving a comment in the box below or share your thoughts with other readers in the 50connect forums.

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