Tips for Late-Start Retirement Savers

FUTURE PROOF: It is never too late to start planning your pension - but with a shorter time horizon you will have to adjust your risk appetite and your investment portfolio

Holly Cook 14 October, 2015 | 10:15AM
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Holly Cook: If you're a late-comer to retirement saving, there are a few things that you can do to try to amass more wealth to get that retirement that you've dreamed off.

You really do need to be prepared to take on some risks. Cash and high-quality bonds are less volatile than stocks, but that also means they offer lower rewards.

Accumulators who need their retirement assets to grow have little choice but to steer a healthy share of their portfolio towards stocks and use time horizon and also your risk appetite to determine exactly how aggressive you are in this case.

So, for example, somebody looking to retire in 2025 might have as much as 60% of their portfolio allocated to stocks and equity funds.

Another thing that you can do is to count on your own contributions rather than the market returns to do that heavy lifting in your portfolio. So, looking back over the past decade, stocks have returned 7% on an annualised basis but those sorts of returns are far from guaranteed.

One thing that you can do is by giving greater contributions you can help to offset the risk that market performance is lackluster. So, for example, investing £15,000 a year for 15 years at a reasonable rate of return of 5% would generate much greater wealth than investing £10,000 per year over 15 years at a higher—but arguably less realistic—rate of return of 7%.

Last but not least, you can always consider working longer as a part of your retirement plan. This is one of the most powerful things that you can do if you're approaching retirement but you feel that you haven't amassed enough wealth. It gives you the opportunity for continued investment contributions and, also, delayed portfolio withdrawals.

Working longer isn't always possible of course, for a host of reasons, so it's important that this strategy is used in conjunction with some of the strategies that we've already discussed.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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