If you're around a decade from retirement and are concerned about the size of your retirement pot, here are some tips.
Forget the 11th hour, if you leave all your retirement savings in shares till the 569,784th hour (the hour before your 65th birthday) you may regret it. Same goes if you're invested in anything else that periodically suffers dramatic falls, like the housing market.
Falling markets aren't a problem for younger Fools (say under-55). They can continue to put money into pension funds knowing that they're buying shares in companies at seemingly low prices. And if you're 40 now, there's a very good chance that the value of your investments will have risen by the time you retire.
But things could be different for older Fools. What would you do if the market collapses in the few months preceding retirement, or during the few months it takes to cash in your retirement pot? It could be tough for you if you intend to convert the whole lot into an annuity (a monthly retirement income).
For those of you around 55-years-old and hoping to retire in ten years or less, you may already have a problem created partly by an unusually poor performance from the stock market in many of the recent years. Perhaps you also haven't been investing enough money.
It doesn't seem economical to be in the economy right now
What's worse, over the next few years you may have less to invest due to higher prices and lower wage growth, and there may be more redundancies. Furthermore, investment returns (from shares, property or whatever) might be poor depending on how much of this whole credit-crunch-trouble thing remains ahead of us.
The question for those of us hoping to retire in a decade, then, is whether we should continue to invest or cut our losses.
Less worry, more planning
My first suggestion is not to be distressed about it. The chances are that when you retire you won't need as much money as you think.
You should re-evaluate what you think you need now. Go through my four-step retirement plan to establish your goals: the retirement income you're aiming for and the size of the retirement pot you need to achieve that.
You can continue to invest
If you're planning to take the normal route of cashing in your entire pension pot for an annuity then continuing to invest for much less than ten years might be risky. Certainly the next two or three years will be unpredictable, so you'll have to be prepared to accept that in the current times your risk is as high as it's ever been.
Even so, unless you have just a handful of years to go, I believe if you continue to drip money into some Foolish investment then you'd be somewhat unlucky to suffer a devastating loss from it, whereas, on the up-side, you could potentially do quite well from it. Please take your attitude to risk into account.
It's even better if you consider alternatives to annuities
I'm not against the idea of taking out annuities. They are suitable for people who want a simple life, not a hands-on approach, so long as you are able to find an annuity that pays enough for your lifestyle. If you're happy with the income you're offered in exchange for your retirement savings, and if it'll support you even as the price of goods rise then fine.
But annuities are not a flexible solution and for many people they're not optimal or suitable, either. If you consider alternatives for at least part of your money, not only will you retain more control of the pot of money when you retire, but you can continue to invest some or all of it beyond your retirement date.
Furthermore, you might be able to get more out of your pot, and be able to pass it on when you die, too. (Unlike with annuities, where your pot goes to the annuity provider when you die, in return for the guaranteed monthly income.)
Allowing yourself the possibility of investing beyond your retirement date is the best protection you can give yourself against the next few unpredictable years. Take a look at such things as ISAs, income drawdown and high-yield investing.
If we're over 55, should we panic or see an IFA?
That's what I was asked recently, but I think we should remain optimistic for the reasons I've just given. You should also feel in control of your situation.
If you still feel totally out of your depth after doing research through The Fool's articles and guides, through our knowledgeable discussion boards, and through other research, then seeing an IFA is an option, but please double-check any advice elsewhere, such as in our aforementioned discussion boards.
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