James Norton, head of financial planners at Vanguard, spoke exclusively with Express.co.uk on how Britons can prepare for retirement. He said: “The rising cost of living means many people may need to stay invested for a lot longer than previous generations to achieve their retirement goals.
“For those just entering retirement, this may also mean that they retain a proportion of their savings in shares to sustain their portfolio.
“An investor in their early 40s, for example, might have 80 percent of their portfolio in shares. It would be sensible to scale this down the closer they get to retirement, to protect against volatility.
“However, for many investors it will still be appropriate to hold circa 30 percent of their portfolio in equities even through retirement to beat rising inflation.”
He suggested that Britons should consider “delaying your retirement”, as a few additional years of contributions can “make a real difference”.
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For example, a saver 10 years from retirement, with a £10,000 investment, contributing £500 a month, at an annual return of five percent would have a pot of £93,471 at retirement.
He explained that had they invested for two more years in the same circumstances, the return would be £115,631 – that’s a difference of £22,160, “a sizeable amount to add to any pension pot”.
Mr Norton continued: “What investors must not be tempted to do is to try to make up the difference by chasing higher yields.
“This will narrow the investment choices of an investor, is likely to increase risk and could damage their retirement prospects further.”
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This means people retiring in the future may have to wait longer to start receiving their state pension.
With state pension coming in later and later, Britons approaching retirement will want to ensure they have an income to fund their lifestyle before the state pension kicks in.
Mr Norton said: “One thing investors can control is the costs they pay on their pension, and this can have a material impact on their retirement.
“You should look closely at the annual platform fees and transaction costs of your provider, as well as the costs of the funds you invest in.
“The less you’re charged for these costs, the greater possibility you have of maximising your long-term returns and meeting your retirement goals.
“Whilst compounding is your friend when it comes to returns, the impact it has on costs is corrosive.
“Every pound you pay in fees is a pound less for you to spend on your retirement.
“Using the above example, investing £200 per month, if you paid an extra one percent each year in fees, you would end up with a pension worth 25 percent less.”
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