How do you generate a sustainable, comfortable income in retirement? For most of our working lives, our lifestyles are supported by a salary. As such, the thought of living off your savings and investments for 30+ years can sound strange. Given the complexities and timescales involved, careful planning is needed. This helps you mitigate taxes and costs which could eat into your retirement income, avoid dangerous withdrawal rates and manage risk so that your lifestyle is not jeapordised should the markets or UK economy experience turbulence.
If someone offered you an investment opportunity with “guaranteed, high returns”, you would be right to question their claim. Whether it’s bonds, stocks or property – all investing has an element of risk. Yet perhaps there is one “investment” which gets fairly close to being an exception. The UK state pension offers individuals a lifetime income in retirement, rising in line with inflation via the “triple lock” system. You do not need to worry about your state pension income falling due to a crash in the stock markets, or the rising cost of living eroding its spending power. Of course, government policy could change the state pension rules down the line – a distinct possibility, but highly unlikely to become a reality any time soon.
There are at least two ways to control your investment growth – the fees you pay, and taxes. For the latter, two investment vehicles are popular for retirement planning – pensions and ISAs (i.e. individual savings accounts). Which is better for mitigating unnecessary tax and enjoying more of your hard-earned savings in later life?