More and more over the last two decades the responsibility of income generation has been given from pension funds to insurers and retirees. Concurrently less people are opting for life annuities when looking at pension products.
One thing that is interesting to note here is that it’s only these products that ensure earnings without a doubt for the remainder of their lifespan. The issue for the pensioners of today is that earnings are now less and products which ensure income are not necessarily the most cost effective way to buy a pension. Particularly if you look at those that adjust to inflation variations. Research shows that the majority of people are not prepared enough for retirement, so this can be a real problem. These pensioners are now often choosing the flexibility of living annuities in the hopes that market returns can offset their short comings in capital.
The problem of low returns is really one we can change, it’s the lack of savings that is the real obstacle. Adherence to investment best practice and proper planning are the best way to counter insufficient capital, there is no product that can magically transform these into massive returns.
Planning is essential
When investing it’s important to look at your circumstances and consider what your options are before you retire. Reading investment news articles and keeping up to date with the economic environment help create a better understanding of your situation. Putting all the moving parts into perspective can be difficult to begin with but the sooner this is done the better. Be realistic about your savings and how long you will need them to last. This will help you build the best defence against inflation and the biggest worry of all: the possibility of outliving your savings.
Very few pensioners look at these factors properly and underestimate how long they will need their money to last. It’s always advisable to think about limiting spending in the early years of retirement to account for this.
Consider the Facts
Before going ahead and actually retiring, it’s worth thinking about delaying a little longer. It’s much more difficult to get back to work after retiring, and much simpler to extend your career while still in it. The benefit of this is twofold, while adding more years with which to save for retirement, there are also fewer years you’ll need to live off your savings. This gives your capital more time to increase, even if it’s not necessarily the most attractive option.
It’s crucial to understand the positive impact of extending the amount of time you have to save. We all know that working for longer is not a reality we like to face easily, but neither is living on sub-par savings which barely cover your requirements. While you may have relatively little control over increasing your own longevity, this is an area in your life where you can actually influence positive change.