Building a retirement fund requires saving enough money to pay your bills and continue living comfortably when you are no longer drawing an income. Though the thought of it may feel daunting, with early planning, building up your retirement nest egg is more discipline than difficult, as George Square Financial Management explains.
Retirement can be an exciting period in life. You might be looking forward to taking a trip somewhere you’ve always wanted to go, dedicating time to a favourite hobby or spending more time with family and friends.
Ensuring you have enough money to enjoy your retirement is a matter of sensible planning and being proactive. There are a number of decisions you can make today to make sure you are best prepared. Investing even small amounts of money on a regular basis could leave you with a larger retirement nest egg further down the line.
The process of building a retirement fund typically involves a combination of consistent saving and long-term investments.
Planning for the future
One of the first stages of future planning is to work out how much income you’ll need when you have stopped working. As part of the planning process, you’ll need to consider what age you plan to retire, how many years you plan to be in retirement, and what your desired monthly income during retirement would be. This can help determine what type of investment approach is most suited to your needs.
Deciding your investment approach
- Investing for growth
Investing for growth is an approach suited to those who want to start building their retirement fund but won’t be retiring until further into the future. If your goal is to invest for growth, this means that you are more focused on growing your initial investment over a medium to long period of time (five years plus) and do not intend to use the investment to boost your current monthly income. For those investing for growth, investing as far in advance as possible from when you plan to start withdrawing the investment should give your funds the best chance of maximum growth.
- Investing for income
This investing for income approach is designed to generate a bit of extra money now and in the future by providing a boost to your monthly income. This approach could be suitable for those closer to retirement, who may be looking for their investment to help with paying regular bills and outgoings in retirement. When investing for income, selecting investment trusts focused on asset classes like equities and commercial property can provide a more reliable income boost.
Your retirement fund needs certainty – you can’t risk losing your savings because you need it as a stable income. It’s important to get the right balance between the need for growth with the certainty of returns when building a retirement fund, and to establish the level of risk you’re able or willing to take.
If you do not already have a large sum of retirement savings, it is probably wise not to take too much risk when you invest. You may not have the luxury of time to recoup the losses should your investment turn awry.
Generally, a bigger portion of your retirement portfolio can be apportioned to higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments that are a lower risk and provide more stable returns.
The key to growing your retirement fund includes having different asset classes in your portfolio. Diversification not only helps you manage the risks of your investments, but it also involves rebalancing your portfolio to maintain the risk levels over time. Read more about the benefits of a well-diversified portfolio here.
Working towards your retirement goals
We understand that planning for your retirement can seem like a daunting process. There are no hard and fast formulas to how you build your retirement nest egg. But keeping the above factors in mind will definitely help you work towards achieving your retirement goals. If you’d like more guidance on how to enhance your retirement plans, please get in touch.
Our highly qualified, experienced advisers will work closely with you to understand your current position and establish your needs.