The breadline is a very real prospect for many at retirement. Most people born post 1970 are facing very different retirement prospects to those of their parents and grandparents. Back then, a job was for life and final salary pension schemes were commonplace. If you worked for a company for 30 years or more, you were sorted.
Those were the good old days but times are very different today. It’s every man for himself. Many of us are heading for the breadline in retirement, and unless you have a plan, you may be heading for the financial abyss. It’s one thing being poor, but being old and poor is quite another. Here are five ways to avoid this:
1: Assess your situation: Any good plan starts with knowing exactly where you are as a starting point. Where exactly are you now? Do you have any current pension arrangements, or nothing at all? Do you have any old pensions with previous companies? Do you have a personal pension? How is it invested? What is it likely to produce if maintained at its current level? A good independent financial adviser will be able to assess your current position and help you project where you are heading.
2: Determine what you want: Now that you know where you are and where you are heading, determine whether that is what you want. Are your current arrangements adequate? If not, your adviser should be able to help you determine the shortfall between where you are now and where you want to be. Your adviser could convert that shortfall into monetary terms and give you an idea of what sort of capital you would need to build between now and your chosen retirement age to be financially secure in retirement.
3: Consider your options? Let us assume that your financial adviser has determined that you have a pension shortfall of a certain amount. Let’s say you are 30 and that shortfall is £200,000.
Personal Pension or SIPP? This is the traditional way of panning for retirement with excellent tax benefits.
ISA? This is a slightly different and more flexible proposition to a pension plan. There are pros and cons for both options.
Property? You could consider the prospect of downsizing when older to release the capital you need. Or you could consider building a portfolio of buy to let properties.
Run? In other words, leave the country! Understandably, this option is becoming more and more popular – especially after the recent weather spell! The plan would be to pay off your mortgage at your retirement age and then sell the property. This is a high-risk strategy and your calculations would have to be spot on to work.
4: Have a plan: Once you have decided what option works best for you, start putting together your plan. Determine how much it would cost you on a monthly basis, or whether you would need to find a lump sum of capital to fund your strategy. Think of all the pros and cons of your plan and assess the risk involved. Again, your financial adviser should be able to help you devise a plan and consider the risks.
5: Implement your plan: Do it now! It’s amazing how many people come up with amazing plans on paper and then do nothing with them. Your strategy is useless without implementing it. Get started and avoid the breadline. The clock is ticking.