We've looked at pensions, investments and moving money. Now, we move on to the final stage.
Insurances Last
Next, take a look at your insurances. While I’m a big fan of insurance, there is simply no point in having too much of it. If you’ve paid your mortgage off, have no other debt and no dependents, your need for life insurance is going to be way less than someone who still has kids at home and a mortgage to pay.
Reassess your need for cover. As always this will be down to taking the time to think through the implications of you either no longer being around or not having an income. If you or your partner would be adversely impacted by the other one dying, then some life cover is still in order. How much cover is a function of the magnitude of that impact. Pick a number, compare that with the current level of cover on your existing plans and take a view.
Loss of income is a different issue. Chances are, if you’re on the Home Straight, you might be at the peak of your earnings power and pumping as much money as possible into pensions and investments. Or maybe you reckon you have enough and you’re already winding down, reducing work hours and your income.
Again, think through the impact on your plans if you had to give up work tomorrow. Would you still be able to retire when you’re planning to? If so, would you have to reduce your standard of living? Look at all your existing cover and ask whether it is still needed, and if it is, whether it is up to scratch.
Stay Invested
Finally, it’s vital to stay invested. The classic approach to wealth in the last year before retirement was to reduce the risk of your portfolio. The thinking behind this was that retirement used to be a cash event, where people converted invest money within their pensions into cash to buy an annuity.
As such, the last thing you wanted was to experience a downturn in the market six weeks before that event and find yourself on a lower income FOR LIFE as a result, so you reduced the risk in the years up to retirement to prevent that happening.
Now, there is still an argument for buying an annuity in certain circumstances, but most folks don’t buy annuities these days. Most go into flexi-access drawdown instead, and that means the money still needs to work, still needs to grow. That in turn means the money should stay invested even as you approach the finish line.
However, understand that this is a general rule. There are always exceptions. I was talking with a friend the other day who is in the Council DB pension scheme. He has an AVC where the rules of the scheme say it could be the source of the tax-free cash part of his DB pension, leaving the pension itself intact.
This will mean a cash event and as such he probably should start reducing the risk of his AVC investments from about five years before his intended retirement date. Golden rule: If there’s a cash event on the horizon, de-risk that money in good time before the event becomes due. If instead you’re going to be drawing from an investment or pensions portfolio forever, then the last thing you need to do is to shift it into cash.
At this point in your financial life – the run-in to retirement – is arguably the time a decent professional financial planner can add the most value to you. If you are in any doubt, seek advice – it’ll more than pay back the fees you’re charged.
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