How Much Is Enough?
Unfortunately, we cannot give you a definitive answer because of people’s differing circumstances. One often used piece of advice for those looking to retire at 65 entails saving a percentage of your annual earnings that is equal to half your age when you elected to start saving for your pension. For example, if you begin saving at 30, save 15% of your earnings. Should it be you start at age 44, you should save 22% of your annual wage. It is up to you whether you want to save via regular payments or one single lump sum per annum. Always make sure that this percentage never changes, regardless of whether your income increases or decreases. There are dozens of useful online pension calculators which can also help you with the decision.
65 is not the standard retirement age any longer with more emphasis placed on the length of time one will be retired. Rising life expectancy means that you will have to be wary when deciding on a definite savings amount which will allow you to live comfortably in retirement. If you are 45 and want to retire at 65, you are in the same boat as a 40 year old looking to retire at 60. However, as the 40 year old would have a longer retirement, he/she would have to save at a greater rate or hope that his/her investments grow more rapidly. He/she would also receive lower annuity and would be ineligible for a state pension for several years. It is also worth noting that the state pension age is set to increase to 66 first before reaching 68 in future.
How To Invest
It is easy to make pension contributions and relax in the false knowledge that you have done enough. The fact of the matter is, insurance companies handle your investment fund and often do a poor job with relatively little in the way of positive performance.
The more diverse your portfolio, the better. SIPPs offer you hundreds of options including futures, shares, property as well as cash. The more you spread out your investments, the less likely you are to be stung by a market crash and the more likely it is that your other choices will make up for any loss suffered by less lucrative choices. You could trust in a managed fund as they all claim to diversify the portfolios of pension investors but it is hard to find one company that is adept in all areas. With SIPPs you get to choose several different fund managers, each a specialist in a field.
Investors who are more than a decade from retirement should be looking towards equity-based choices. It is best to stick to UK equities for the most part with smaller investments in the US, Japan and strong European countries. If you have a large pension you may be interested in more expensive commercial property. Use the freedom offered to you by a SIPP to invest as safely or as riskily as you wish.
Those who are almost at retirement age need to avoid volatile markets like the plague. If your pension is to be claimed in annuities, be sure to look at cash and fixed interest options. Slowly eliminate all other choices as retirement age creeps up. Keep a close eye on the markets as you do this. When they have hit their peak, leave equities behind and transfer the money into fixed interest.
How To Begin
When you are just beginning to contribute to a SIPP you should be aiming for income producing investments. Equity income funds are one of the best places to start for anyone who has many years left until retirement. It is also possible to continue investing in equity income funds while you withdraw some of your pension. The aforementioned fixed interest investments are a safe way to play the market once retirement age looms. There is also the option of investing in specialist areas and growing markets though these investments are usually considered to be the most risky.