How to boost your pension pot & retire sooner
Find out how to boost your pension pot & retire sooner. It might be easier than you think!
When it comes to retiring, we all want the best financial plan behind us but we can inadvertently waste some of it.
Here, Hannah Goldsmith explains:
We all need a pension that will give us the lifestyle we want for our retirement.
Review the charges
You may have a pension pot you’re investing in or other investments which you have earmarked for your retirement.
The key to retiring sooner and without money worries is to review the fees you are being charged on any retirement and investment plans you have.
Let me explain why and also show you what can be achieved with an example:
Regardless of age or how much money you have, high industry fees can delay you reaching your desired date you start your retirement. With the changes implemented following the ‘Retail Distribution Review’ (RDR) five years ago and the new update to the Markets in Financial Instruments Directive which came into force on the 3rd January 2018, investors have never had so much information available to them. Yet very few investors understand the fees they are paying and the impact of those fees – but it’s a lesson they need to learn.
Here’s an illustrative example:
- Pete is aged 30 and has a smaller pension fund valued at £40,000. He wants to retire on his 65th birthday. The average annual return is 7% per annum over the investment period. The total Financial Services fees are 2.13% per annum and no further contributions will be made.
- The fund value is projected to be £203,968. As £40,000 was Pete’s money already, he has made a profit of £163,968. The Industry would report how well he has done and Pete may be content with his advisor’s recommendations. However, it has cost him £74,588 in Financial Service Industry fees to make £163,968.
- Frankie, like Pete, has exactly the same scenario but shops around and reduces her fees to 1.1%. Lower fees do not mean lower returns and Frankie also averages a 7% return per annum. Because the fees do not cause such a drag on the returns, the fund value compounds and, at retirement age of 65, has grown in value to £291,105. As Frankie already had £40,000, a profit of £251,105 has been generated but with a reduced industry cost of only £48,623.
Pete effectively gave away control of his money to the Financial Services Industry and achieved a fund value of £203,968 to live the rest of his life on, paying £74,588 in fees over the term.
In contrast, Frankie took back control of her money and achieved a fund value of £291,105 for exactly the same financial return, the same financial risk and with the same consumer protection.
By shopping around to get the best fees she has achieved her target retirement fund value at her projected retirement date.
You don’t need to be a math’s teacher to see how significant the difference can be. What’s important is to take an active interest in your pension pot and any other investments you have. That way you’ll have the retirement income you need.
Will your pension pot be as big as it could be?
ABOUT THE AUTHOR
Hannah Goldsmith is founder of Goldsmiths Financial Solutions and author of ‘Retire Faster’. Hannah specialises in Low Fee Investing and is challenging the way financial services are delivered to consumers in the UK, by enabling each client to understand the nature of investment costs and the impact these costs have on their future lifestyle.
Goldsmiths complimentary ‘Second Opinion Service’ reviews investors’ existing portfolios and makes recommendations on Risk, Diversification, Performance, Cost and Tax efficiency, making investors’ money grow in a more transparent and financially efficient way.