Are you prepared for retirement?

Thanks to healthier lifestyles and advances in medicine people are living longer lives, but many individuals may not feel financially prepared for their retirement, write Glenn Welby and Aodh McGrath, Welby Associates.

When it comes to setting your investment goals or strategy for your retirement there are two main options:

EIGHTH ‘WONDER’ OF THE WORLD

Compound interest has been called the “eighth wonder of the world” Its power is so great that even missing out on a few years of savings and growth can make an enormous difference to your eventual returns.

You can make better use of the magic of compounding if you reinvest the income from your investments to grow the starting value even more each year. Over the long term, the difference between reinvesting the income from your investments and not doing so can be enormous. Any equity type investments do not include the security of capital, which is afforded with a deposit account.

THE LESSON IS NOT TO PANIC

The last ten years have been a volatile and tumultuous ride for investors, with natural disasters, geopolitical conflicts and major financial crisis. It’s important to have a plan for when the going gets tough instead of reacting emotionally.

The lesson is not to panic: more often than not, a stock market correction is an opportunity, not a reason to sell.

Market timing can be a dangerous habit. Corrections are hard to time, and strong returns often follow the worst results. But often investors think they can out smart the market, or they let emotions like fear push them into investment decisions they later regret.

While markets can always have a bad day, week, month or even year, history suggests investors are much less likely to suffer losses over longer periods. Investors need to keep a long-term perspective. A diversified portfolio also provides a much smoother ride for investors than investing in just equities.

OPTIONS AT RETIREMENT

Leave your pension invested if you don’t need to take money straight away.

Take the tax-free cash and leave the rest invested.

Take some or all of the money as a cash lump sum.

Buy an annuity to provide a lifetime’s secure income.

Use a combination of the above.

WHATEVER YOU DO MAKE AN INFORMED DECISION

Using your pension money now could help your finances but could also affect your future. It’s important to receive expert financial advice so that you make an informed decision. Whatever you choose to do, it’s important to understand the tax implications and consider all your pension options to avoid any unnecessary bills.

RISKS YOU NEED TO CONSIDER

• Paying too much tax on pension withdrawals.

• Buying unsuitable investments.

• Using all of your funds too fast.

If you would like help reviewing your options if you are either starting or drawing a pension you can contact Glenn, or Aodh at Welby Associates Wealth Management Ltd, House of Vic Ryn, Moira Rd, Lisburn BT28 2RF. Tel 02892622910.