Money and R budgeting
Money and budgeting
So, what steps can you take to avoid being strapped for cash once you retire?
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RETIREMENT
today
etirement is the reward for a hardworking life – but while you may be ceasing work, you should not allow your money to retire as well. It is important that it continues to work hard for you, so that you’ve got the financial security and flexibility you need. There are many money-related decisions to be made when you retire: get them right, and your income could increase year by year; fail to plan, and you might be faced with making personal cutbacks at a time when you should be relaxing and enjoying yourself. With people living longer, secure pensions from salary-related pension schemes fading fast and new pension freedoms that have reduced the use of annuities, more pensioners are directly exposed to the three great risks of retirement: longevity risk (outliving your savings), inflation risk (the buying power of your money falling over time), and investment risk (being exposed to the ups and downs of the stock market). Inflation means a sustained rise in prices – not just a temporary hike in the cost of coffee or petrol, but the relentless upward drift of prices over time that means your money buys less today than it did in the past. Even low rates of inflation have a big impact on prices over a long period: for example, if inflation averaged 2 per cent a year (the official target for the UK), £100 after 25 years would buy only the same as £61 today, meaning you’d have to cut your spending by over a third. Aviva (an insurance and pensions provider) suggests that over three-quarters of pensioners are worried about the rising cost of living and having to continue working to make ends meet. Obviously one way of increasing the problem is to bury your head in your hands and do nothing. So, what steps can you take to avoid being strapped for cash once you retire? Whether you are close to giving up work or are several years away from retirement, the most important thing to do is carry out a serious review of your retirement plans. This will help you work out what options there are for maximizing and sustaining your future income. There are many ideas on what makes a good financial plan, but the core elements are the same. In order of priority, a typical person should normally aim to:
