For many investors, the road to retirement is longer and more fraught with obstacles than ever before. Are your clients saving enough? Are there expectations realistic?
Almost every day I find myself ‘banging on’ about the impact that improved longevity has had (or should have had) on how we go about saving and investing for retirement. Given that relatively few start
actively investing for this stage of their lives much before the age of 30 (I suspect that most who join their first employer’s company pension schemes do so passively, i.e. take years to switch out of the default fund), many of us face the prospect of spending just as long in retirement as we did saving for it. It’s this stark reality that has leant itself to the creation of aggressive portfolios for retirees, with high stakes in equities and aided by the boom of ETF choices, among others. But the retirement phase of your investing career is so fraught with complexities that it seems paramount that investors seek professional advice—long before they reach this life stage.
Among some of these afore-mentioned complexities is the erosion of purchasing power over time, difficult-to-forecast healthcare costs, the nuances of inheritance tax, and so on. And among the pitfalls we have overzealous withdrawal rates, unrealistic returns expectations, unrealistic expectations of income needs in retirement, and inefficient sequence of withdrawals from retirement accounts.
I have no doubt that I’m preaching to the converted here so I’d be interested to hear your own thoughts on what constitute some of the main barriers to effective retiree investment plans, as well as what you see as the most lethal—or least recognised—pitfalls.