Investment Considerations
Your pension scheme gives you the means to achieve a more comfortable retirement- but besides simply joining the scheme, you need a clear financial strategy to ensure you get the most out of it.
You don’t need to be an investment expert to make the right decisions regarding your pension savings – although a solid understanding of the basics will certainly help. But before you start making investment choices, there are several questions you should think through…
How many years until I retire?
The amount of time you have until your retirement will affect your investment decisions. If you still have most of your working life ahead of you, you can afford to make long-term investment decisions, which may mean being more prepared to risk short-term drops in investment value for the sake of greater gains in the long run. If, however, your retirement is only a few years away, stability may be more of a priority in the investments you choose, as there may not be time for your investments to recover any potential loss in value.
How do I feel about risk?
Aside from the issue of the time you have until retirement, you need to ask yourself how you feel about risk. Are you a conservative investor, moderate or aggressive?
Your attitude to risk will greatly affect the investment choices you make. An aggressive investor will be prepared to run the risk of investments that could suddenly drop in value on the basis that these same investments also have the greatest potential for large increases. A conservative investor, however, will favour more stable investments that are likely to deliver steady but not spectacular growth.
How much do I currently have saved?
You may have other savings that you want to take into consideration – even other pension savings from a previous employer’s scheme. If this is the case, you may be able to add these to the savings you make in this pension scheme.
Also, as your savings in the scheme build up over time, you should review your investment choices to ensure they remain appropriate. You may want to protect the savings you have by investing in more stable funds, or you may want to use your money to pursue higher returns and choose a more aggressive strategy.
What other sources of retirement income do I have?
Your savings in the scheme should never be considered in isolation. When deciding how much you would like your savings to be worth at retirement, you should take account of any other sources of retirement income that will be available to you.
These may include other pension entitlements from previous employments, State Pension provision, and any other benefits you could receive. Ensuring you understand the full picture when it comes to your retirement savings will enable you to make the right investment choices now.