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Managing Your Pension In The Lead Up To Retirement
The time when your pension is most at risk is the last few years before retirement and the first few years after retirement. Managing your investment post retirement is fundamentally different to managing it during your younger years because instead of contributing to the fund you are taking an income from the fund, so the mechanics involved are completely different and the implications of high volatility of returns are more severe. This is the time when a fall in value will have the most detrimental effect on your income in retirement. If you would like to understand this more fully please read this article.
There are many issues to consider, such as the stage of the economic cycle, your attitude to risk, your risk capacity and tolerance, your planned retirement date and what you intend to do with your pension when you reach retirement age. Ideally you should address these issues at least ten years prior to your planned retirement date.
Many pension savers, especially those in company schemes, are invested in Lifestyle funds.
Lifestyling is a kind of one size fits all approach to investing which gradually moves the member’s investment out of higher risk assets like equities, into (supposedly) lower risk assets such as bonds, as the member gets closer to retirement age. This had been considered a good strategy historically because it used to be the case that most people, when they matured their pension used most of the fund to purchase an annuity (income for life). Bond values are inversely proportional to bond yields and annuity rates are linked to bond yields. The beauty of lifestyling was that in the latter years of your working life you had a significant portion of your pension fund in bonds and if the value of the bonds dropped, this meant that yields had gone up which meant that annuity rates increased also. Therefore, the loss of value was compensated for by the higher annuity rate on offer at retirement. The problem with this strategy today is that far fewer people are opting to purchase an annuity at retirement, preferring instead to preserve their capital via the ARF option. Lifestyling is an old strategy which for many people may no longer be appropriate.
Another issue which will be relevant to you is maximising your retirement lump sum. It is important that you plan in advance for this. Irish Life recently revealed that almost 35% of retirees from schemes administered by them last year could have made an AVC to their pension which they could have subsequently withdrawn tax free – a missed opportunity for lack of good advice at the right time.
If you are approaching retirement, already at the point of retirement or even past it and you’ve never obtained specialist advice contact us today on 01 546 1100 for a no obligation discussion or book a 15 minute video call with us here.
Read some of our recent articles in publications such as The Sunday Times and the Business Post by clicking on this image.
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The material and information contained on this website is for general information purposes only. Neither the writer nor Highfield Financial Planning Ltd makes any warranty as to the completeness, accuracy or reliability of the information or the suitability or availability of products or services, referred to on the website, for any purpose. You should not rely on any information contained on this website as a basis for making any financial, legal, taxation or other decision. The information presented does not include all the considerations which are relevant to the topic discussed as to do so would render it un-readable. When considering any financial issue you should seek the advice of a suitably qualified adviser.
Best Pension Advice is a trading name of Highfield Financial Planning, the most client focused financial services company in Ireland. We provide superior advice on Retirement Planning for all types of pension available in the Irish market. As Specialist Investment Advisers we can also help you to manage the investment of your pension to achieve your income objectives in retirement.