Due to the high life expectancy, even pensioners have to take some risks. So is the pension you need to live comfortably and long.
Investing still takes a long time, so savers planning for a comfortable retirement should avoid high-growth companies altogether and opt for lower-risk options once work is done, experts say. No.
Currently, life expectancy at age 65 is 84 for men and 87 for women. According to Interactive data, someone who lives to age 84 (18 years after supposedly retiring at 66) could spend £212,000 for a good retirement and £450,000 if they plan to live comfortably after work. A pension of £2,000 is required. Investor.
The report uses guides from the Pension Lifetime Savings Association, which states that single retirees need £15,383 of private pension income for a decent retirement and £32,882 for a comfortable retirement. suggests that
But a centenarian will need a lot more money, with a nest egg costing between £324,000 and £692,000, a £112,000 to £240,000 difference compared to an 84-year-old. be.
“As more people live longer, it’s hard to know how long an annuity needs to last,” said Alice Guy, head of pensions and savings at Interactive Investors. If you live to 100, you may need £240,000 more than if you live to 84. And if you run out of money, you may have to rely on the National Pension alone, which will be enough for a no-frills and frugal retirement. “
For some people, saving around £700,000 for a modest retirement by age 100 may be nearly impossible, but there are other options. It’s about building wealth all your life.
While some people shift their savings to lower-risk assets to tap into income, experts have suggested leaving some of your retirement money in riskier assets that will grow over time.
Simon Evancook, fund manager at VT Downing Fox, said inflation was the highest for retirees, especially now that year-on-year inflation is well above the Bank of England’s 2% target of 6.8%. said to be a threat to
He suggests choosing a global equity portfolio to mitigate the threat of leading a market and eating out returns, opting for “well-managed active funds” rather than global trackers. said he would.
“In light of this, I think the LF Havelock Global Select Fund, managed by Matthew Bedour, is a great option. As long as we think there’s a good reason, as long as we’re willing to let markets and companies go, this is truly global,” said Evan Cook.
The £158m fund, launched in 2018, has returned 36.9% since its inception, just below the average IA Global fund (up 39.8%) and the MSCI World Index (54%). ).
Performance of Funds vs. Sectors and MSCI World Index since inception
Source: FE Analytics
But the fund is about half U.S.-weighted in the index, with little tech stocks, and 2023 could be a headwind, especially as tech stocks surge in the wake of the rise of artificial intelligence (AI) in the U.S. It has become.
Rory Maguire also agreed with Evan Cook, saying, “Anyone looking beyond a decade should consider investing in stocks.”
“Our choice is the Dodge & Cox Global Stock Fund, which has a long track record and is reasonably priced,” he said.
The $4.7 billion fund has outperformed its peer IA Global over the past 1, 3, 5 and 10 years. It recently outperformed the MSCI World Index, but has underperformed it over the past decade.
10-Year Funds vs. Sector and MSCI World Index Performance
Source: FE Analytics
Square Mile analysts also gave the fund a high rating, giving it an ‘AA’ rating. They noted that portfolios typically have more “value bias” but “are not entirely driven by this investment style.”
“It is worth noting that due to the long-term nature of the investment approach and the emphasis on valuations, the fund’s return profile may exhibit periods of heightened volatility relative to the broader global equity markets. Nevertheless, our view is that investors should be well compensated on a risk-adjusted basis throughout the market cycle,” they said.
Another global option is Orbis Global Equity, selected by Advisor Center Research Director Gil Hutchison. The £124m portfolio is a top quartile performer in IA Global over 1 and 3 years, and also outperforms its peers over 5 and 10 years.
“The fund is not bound by a benchmark and the team patiently defines long-term investment horizons and manages the fund with a focus on mis-priced companies,” she said.
“While short-term investments in ORBIS Global Equity are not without challenges, we believe they are an attractive option for investors interested in future results.”
Overall, Guy said retirees should aim for a mix of funds that cover a range of investment risks, which means a balanced portfolio remains important in later life.
“Many of us live longer, so it’s important to consider investing for growth as well as income, but both are important,” she said.
For the high-growth part of the portfolio, he said, many opt for global trackers, which invest in the world’s biggest companies such as Apple and Microsoft.
“Another option would be a growth-focused mutual fund or fund, such as Terry Smith Fundsmith Equity or Jupiter Merian North American Equity,” Guy added.
Comparison of fund performance over the last 10 years and the MSCI World Index
Source: FE Analytics
Both companies have outperformed the MSCI World Index (the comparable option most investors take) over the past decade, Guy said, with the former up 308.7% and the latter up 293.9%. Both companies were among the top quartiles in their respective sectors (IA Global and IA North America) during this period.
Guy said that retired pension savers “often focus on investing in funds that deliver healthy dividend income” and have “dividend hero” status with the Association of Investment Companies (AIC) that increase their dividends for at least 20 years. Acquired mutual funds should also be considered, he added. .
“They include Merchants Trust, City of London and JPMorgan Claverhouse, all with historic yields above 5%,” she said.
However, if splitting your portfolio by choosing individual funds is too much, a “very simple” retirement option is to opt for a pre-made fund that invests in a mix of stocks and bonds, such as the Vanguard LifeStrategy 60% Equity Portfolio. is to buy. We invest 60% in equities and 40% in bonds.
This allows investors to continue accumulating wealth after retirement, but also offers less risky options depending on a person’s ability to tolerate losses.