PLANNING
What you should be doing
in your 50s
Given at age 50, you will be just five years shy of being able to access your
nest-egg, you should have a decent idea of when you will retire and how big
your pension will be.
Typically, most people in their 50s will be at, or at least
approaching, their maximum earnings power. In
addition, it is also a time when your overall outgoings,
such as your mortgage, should have reduced.
Experts recommend using this extra spending power
to maximise your contributions, but beware the
lifetime limit of £1.25m, falling to £1m in April 2016.
Anything above this will be taxable.
Your investment strategy at this point will
largely be dictated by how you intend to
draw an income in retirement.
If you plan to trade in your pot for an annuity,
which will provide you with a fixed annual income
for the rest of your life, you want to protect the
capital you have saved as you certainly do not want
to see all your work undone by market volatility. This
means de-risking your portfolio.
Many workplace schemes use a de-risking strategy,
often referred to as lifestyling, which moves savers out
of more risky investments (such as shares) and into a
mixture of bonds and cash over the last 10 to 15 years
before retirement. However, moving your portfolio
into traditionally safer assets is only really necessary if
you want to buy an annuity.
If you are planning to go down the income drawdown
route, where you remain partially invested, it does not
make tactical sense to have a hefty amount of your
portfolio dedicated to the likes of cash and gilts, as
you will still need a decent growth bias. Even if you
retire at age 55, there is a very good chance you could
live for another 30 years, so a diversified exposure to
equities – about 50 per cent – is recommended.
Ultimately, you need to decide when you wish to stop
working and take your pension, as this will help you
decide how much risk you should be taking on.
Key points
If you are not going to buy an annuity, you can
still keep a decent level of risk in your portfolio
There is still plenty of time to alter your
retirement pot, particularly as you can keep
your investments post-retirement
Now is the time to act if your retirement pot is
not forecast to deliver the income you are
hoping for
Annuities
Page 30
Drawdown