That magic number that your financial adviser tells you is the amount of money you need to invest for a comfortable retirement is a best guess not a certainty.
No one can guarantee that financial figure, because so many assumptions and variables are included in the equation, even a small shift can lead to a big change.
In practical terms, most people plan retirement by adding up what their work or private pension will pay, plus the state pension and some element for inflation to estimate fund growth.
If you are British and approaching retirement, just look over the past few years and the number of assumptions that have gone wrong.
What can possibly go wrong?
Here’s just a few to consider:
- The banking crisis and recession
- Losing you job
- Increasing inflation
- Government tinkering with pension rules
- Volatile financial markets
- Living longer
- Pension charges
- Low saving rates
The problem with retirement planning is the factors that affect your finances are beyond your control.
You need a plan, you need a budget and you need to review performance, but even the world’s leading economists get their predictions wrong, so at best you can only hope for the best.
So what can you do to guarantee your pension. The answer is simple – nothing.
Take control of your pension
The best bet for many who are confident with money is to take control.
For UK tax residents, that generally means mixing an ISA and a self-invested pension plan (SiPP).
For non-residents, UK tax breaks fall away, but the generally accepted alternative to a SiPP is a Qualifying Recognised Overseas Pension Scheme (QROPS).
QROPS do pretty much the same as SiPPs, but have the added advantage of taking pension funds beyond the reach of tinkering by the government and many more flexible investment options.
QROPS can also offer other benefits, like a larger tax-free lump sum payment – up to 30% from some providers compared with 25% in the UK.
You would have thought that after more than 100 years of pensions, the formula would be reasonably right by now, but somehow, things keep going wrong and the world’s governments still have not got a handle on how to manage money, so what chance for individual investors?