Life can often shift gears when people enter their 60s, whether it slows down in retirement or speeds up with grand plans for travel.
Those nearing 65 should have a clear idea of when they plan to retire and how much income they will need once they stop working. By this time, the bulk of pension saving has usually been completed so it is easier to devise a budget based on the size of your nest egg.
Once that is settled, pension and Isa investments should be revisited to make sure they are suited to the transition. Poor investments that are overly risky and charge high fees can cut years off the longevity of a pension. Likewise, overly cautious approaches can stifle growth and deny you a larger pension.
1) Generate an income
Savers can access as much of their pension as often as they like from age 55. Anyone planning to draw a regular income from their pension as they move into retirement is likely to want to shift their pension into income-paying funds.
The Evenlode Global Income fund, which invests in technology, healthcare, consumer goods and media stocks, and the Threadneedle UK Equity fund are two investments that would be a good match for those who want to draw a sustainable long term income from their pension investments, according to Laith Khalaf of AJ Bell, the stockbroker. Both funds have a projected yield of 3pc.
2) Avoid “clumping” your assets
The natural urge may be to completely jump into British income funds but there is a risk of “dividend clumping”, Dan Lane of Freetrade, a stockbroker and pension provider, warned.
Funds investing in income stocks tend to gravitate towards a few key players in the FTSE 100, the largest British companies. This includes oil companies, tobacco firms, metal miners and banks.
“Holding a few of these funds without looking under the bonnet means you are probably too dependent on just a few firms.
“As 2020 showed, particularly where the banks are concerned, that reliance on one sector can put you in a very precarious position,” he said.
3) Spread your savings
Shares may have been useful as a way to grow your wealth throughout your working life, but it is no longer the only priority. Protecting against any sudden market drops is paramount and growth investments should be used to keep the pot ticking over.
That can be tricky for DIY investors to manage themselves. Those who need some guidance can look to “multi-asset trusts”, which invest across a range of investment types.
Choosing a global portfolio is one way to reduce those “clumping effects”.
The Caledonia Investments trust was quick to recover after last year’s stock market falls and has performed well since, Mr Lane said. It has 54 years of dividend increases and invests in listed and private stocks across a number of countries. This means investors are not tied to just one country.
