To try to self-manage your flexi-access drawdown pension is complete madness.
Why on earth would you try to do that? Simply to avoid fees? Or some other bizarre reason?
Now and for always, the dominant factor in long term, real life, financial outcomes is investor behaviour.
Not taking proper financial advice is exhibit number one when it comes to ridiculous investor behaviour.
Why would you do that? Why? Oh why? Oh why?
Because you have an irrational confidence in your own investment ability,
and/or
think you are blessed with unique insight?
Or is it just the fee thing?
We charge a £ fee that’s always less than 1% of the amount invested. Does it seem probable to you that, with all the resources at our disposal, we will…
1. cause your long-term returns to be at least 1% pa more than you might make on your own,
and/or
2. save you at least 1% pa in the cost of mistakes we will help you avoid,
and/or
3. save you at least the equivalent of 1% pa in time, energy, worry and record keeping?
Well a good proportion of the retiring population are taking their retirement planning into their own hands for some deluded reason.
My guess is they won’t have done the slightest bit of proper research, don’t understand one end of a platform / OEIC / ETF from the other. Have only the vaguest understanding of how the tax will be worked out etc.
And guess what?
Recent research has revealed the alarming statistic that around a third of people are now likely to run out of money after they retire.
That could result in their children’s inheritance being severely diminished or even disappearing completely.
This follows the introduction of pension freedoms in 2015, which have allowed people to withdraw large amounts of money from their pension savings at any time.
Many within the pensions sector are now worried that this significant shift away from annuities may result in thousands of people ending up with no money to live on as they get further into their retirement.
As such, many may find themselves needing to turn to other assets, including their homes, in order to raise funds to support themselves – a decision likely to have a significant impact on the inheritances they leave behind.
The research looked at over 5,000 retirement scenarios, comparing the performance of drawdown against an annuity purchase in conjunction with a wide range of investment outcomes.
The results showed that 30% of drawdown cases left the individual with no money before they died, suggesting that while opting for drawdown may be suitable for some people, it can pose a serious financial risk for others.
One scenario considered a man aged 65 with £100,000 available to invest. Purchasing an annuity would pay him £5,500 a year until his death.
A low-risk drawdown investment, which placed 90% of his money in cautious assets including cash and low-risk bonds and the remaining 10% in higher-risk options such as shares, would only deliver a return of between 0.9% and 1.5% annually.
As such, the man’s money would run out when he was around 84 or 85.
As around 60% of men are still alive in their mid 80s, this would potentially leave him with years of retirement without any funds available.
A higher risk investment, where 90% of the money goes into shares and 10% in cash and bonds, could result in an average return of 5.5% and money until the man turns 98.
These latest findings highlight the importance of sensible planning and saving for your later years to suit your particular situation.
If you have any questions around this topic, please feel free to get in touch.