Saving for retirement doesn’t have to be complicated or daunting. This week I distil it down to five key choices.
Five key decisions for retirement savers
With the end of the tax year looming on 5th April, this week I take a look at retirement saving. Although this is a topic that many investor find a little daunting, I think it can be distilled down to five key choices.
ISA or SIPP?
The good news for savers is that Individual Savings Accounts (ISAs) are becoming more and more flexible. However, they do not offer the valuable tax breaks that come with a personal pension, such as a SIPP (Self Invested Personal Pension), including the fact that they form part of your Death Estate if you hold them for long enough. The key differences are summed up here;
Many investors will, of course, choose to run both side by side. For more information about either, or both, or these wrappers and the most tax-efficient way to use them as part of a retirement savings plan, please contact your Investment Manager and request a copy of my Killik Explains Guide to tax effective saving.
Growth or safety?
Once you have decided on the right wrapper for you, some consideration needs to be given to what will go inside it. This is dynamic, in so far as it will change as you move through your investing life and towards retirement. It will also be heavily influenced by your appetite for risk. Another important factor is the flexibility of pensions, following the changes to the rules known as pension freedoms. You can now maintain a SIPP as a fully invested, managed account all the way to retirement and beyond. This has changed the way many people approach the pre and post retirement structure of their SIPP portfolios.
Separate or consolidate?
As we travel through our careers, we may change jobs a number of times and pick up pensions along the way from different employers as well as from our own efforts if we have set up personal pensions too. At some point it is worth looking at whether you are better off keeping all of these savings pots separate, or combining them into one larger one. This needs careful thought but the arguments can be summarised like this;
Jam today or tomorrow?
On reaching retirement we now have a number of options – the days of compulsory annuity purchase have long gone. Using this choice wisely is important and involves weighing up a number of factors;
Annuity or drawdown?
Pensions freedoms can seem a bit daunting to some investors but they have also brought in the ability to tailor a pension solution to your needs. So, for example, there will be some investors who like the safety and predictability of an annuity (despite the poor rates on offer) and others who want much more control over the way their capital is deployed and subsequently drawn down. Whilst there are a number of components to a drawdown strategy and a number of ways of approaching it, these final slides summarise some of the key ones versus the annuity route.
If you would like to discuss any of the points raised in this short blog, please contact your Investment Manager or Wealth Planner. They will also be able to set you up with a copy of my latest Killik Explains Guides dealing with building a retirement fund and generating income in retirement.