Saving for retirement – so what’s to smile about?

banner-graphic-2-new-1

Saving for retirement – so what’s to smile about?

Saving for retirement is hard work but well worth that smile in retirement! The little things in life such as mortgages, rents, school fees etc tend to get in the way of this important saving.

When looking ahead to post retirement years, I feel it is important to look through the lens of projected expenditures. It’s important to think in terms of your personal funding ratio – which simply divides your assets (present and future) in today’s money, with your required future outgoings (liabilities), again in today’s money.

Your personal funding ratio focuses your mind on “Goals Based Investing” which we will cover in a later blog. Essentially the bigger the pot you save the more likely you will be able to attain the right pattern of cash flows throughout the stages of your post retirement cycle.

So what do you think your future expenses will be over different periods of your retirement? I like to think of it as your retirement smile.

smile-1

It goes without saying…..the more you save today the bigger will be your smile at retirement!

So let me just explain where the “smile” comes from. In the first few years of retirement you are likely to spend more money……you will be more active and agile in your earlier years, you will want to go on all those fabulous holidays in exotic places that you had been planning for decades, treat your grandchildren etc

In the second phase of your retirement you’re likely to spend less money. You’re getting older, less agile with a more sedentary lifestyle and spend more time at home. In the final stage of retirement your expenses will again increase as you become less mobile and may need to pay for a retirement home or the cost of home care is likely to mean your bills start to pile up.

Prior to the introduction of the governments new “freedom and choice agenda”, the orange and blue columns in the chart above were representative of a typical Defined Contribution (DC) saver. In year one, as a newly retired pensioner, you would be likely to take out the maximum tax free lump sum of 25% and at the same time buy a level annuity.

However given the increased flexibility introduced I believe we will have even more to smile about! And in my next blog in this series, I will set about explaining how our smile is likely to change and the implications for providing better quality and more flexible choices to DC members going forward in this brave new world of pension reforms post April 6th.

Sital Cheema-Associate Director, Client Strategy & Research EMEA

Sital-Cheema

  1. No comments yet.
  1. No trackbacks yet.

This blog is not intended for retail investors. The opinions expressed herein are that of Russell Investments, are not a statement of fact, are subject to change and, unless they relates to a specified investment, do not constitute the regulated activity of “advising on investments” for the purposes of the Financial Services and Markets Act 2000.

This material does not constitute an offer or invitation to anyone in any jurisdiction to invest in any Russell product or use any Russell services where such offer or invitation is not lawful, or in which the person making such offer or invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation.

Unless otherwise specified, Russell Investments is the source of all data. All information contained in this material is current at the time of issue and, to the best of our knowledge, accurate.

The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

Copyright © Russell Investments 2017. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.

The Russell logo is a trademark and service mark of Russell Investments.

Issued by Russell Investments Limited. Company No. 02086230. Registered in England and Wales with registered office at: Rex House, 10 Regent Street, London SW1Y 4PE. Telephone 020 7024 6000. Authorised and regulated by the Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.