Investing for the Over 55s
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Once you reach 55, you’re entitled to begin drawing your pension. However, many people continue working until 65 or beyond, potentially giving you another decade or more to continue building your pension savings.
As retirement draws closer, there is often a sudden realisation for a need to start saving, which you may be more than aware of if you fall into this age category. The need to start putting money away for your retirement is explained to you throughout your adult life, however we often put it off until the last minute as we have more impending costs to cover. Nevertheless, the need to put money away for retirement is imperative, and could mean the difference between living out the retirement you dream of and potentially struggling to make ends meet.
So what can we do during this period of our lives to secure a decent retirement pot?
Open a Personal Pension
A Personal Pension can be a great way of boosting your retirement income.
They are a popular retirement savings vehicle that put you in control of your pension planning. They work by you choosing a pension provider and paying a set amount into your pension each month or paying in a lump sum. The contributions are invested into Stocks & Shares with the aim of accumulating wealth.
Since April 2015, the options available to you to fund your retirement have increased. The range of options you can choose includes spending your pot on an annuity, taking 25% of your pot as a tax free lump sum, using the whole pot as an income via flexi-access drawdown, or mixing the options.
It is also important to note that you can open a Personal Pension up until you turn 75. However, the amount you can invest per year has a limit of your earned income in that tax year up to a maximum of £40,000 or £3,600 should you not be working.
You may also be interested to know that should you pass away whilst owning a Personal Pension, your beneficiaries will not miss out on any extra money you may have left in your pension pot. New rules that came into play for Personal Pensions in April 2015, see beneficiaries taking the remainder of your fund as either a lump sum or a draw down income from it without paying any tax, if you die before the age of 75. And if you pass away after this, they will only pay tax on this at their rate of income tax – not yours.
Open a Stocks & Shares ISA
From the 2017/18 tax year, your ISA allowance will be £20,000. This can be spread across Cash ISAs, Stocks & Shares ISAs and Innovative ISAs, or all paid into one.
With the Bank of England base rate at just 0.25%, this can create problems for those planning on using cash from a savings account or Cash ISA for their retirement. However, putting away for your retirement via a Stocks & Shares ISA has been proven to give investors a higher return over longer investment periods, with the average return in 2014/15 being 7.4% for clients.
The general consensus with investing in Stocks & Shares is that you should commit to long-term investing for over five to ten years. This is so you can level out any dips in the market and give yourself a better chance of receiving a high return. Having a Stocks & Shares ISA alongside a Personal Pension can add towards your total pension pot, meaning that you could potentially have a higher income in retirement.
One of the main attractions of ISAs comes from their tax benefits. However, when you die, these benefits end. But your spouse or partner may inherit your allowance. This means they can put in to their ISA an additional amount up to the amount of the deceased’s ISA.
Retirement is a fact of life and one that we all need to prepare ourselves for no matter what our age. The sooner you act on putting away for your retirement, the more money you may have to see you through.