| A 25
year-old wished to start funding a pension with a contribution
of £100 per month with the objective of retiring
at age 60.
We advised her that there
are two factors that will determine the eventual size
of her pension fund: how much she pays in and how much
the investments grow. Our philosophy in determining the right level of contributions
is that while we can calculate the amount you should
be saving in an ideal world, inevitably the contribution
has to be realistic and affordable within your budget. We believe that unless we can provide more input to
the investment decision, we are not doing what we get
paid for. |
It
is not always easy to appreciate the difference that
an extra 2% growth each year can make in the long term,
so to put this into context the fund values projected
at age 60 for our client using standard FSA rates are
as follows: 5% p.a. £92,000, 7% p.a. £140,000,
9% p.a. £219,000.
Before her meeting the client felt she ought
to be conservative in the investment of her retirement
savings. However, we advised her how the volatility
associated with stock market investments can actually
be beneficial over a long investment term when saving
on a regular basis. From 2010 it will not be possible
to access a pension fund until age 55 so our client
has a 25-year time frame to average out the ups and
downs of the stock market. Having discussed some examples of how this process could
work to her advantage, we agreed to use an aggressive
strategy until age 55 and then switch into more conservative
funds for the last five years before retirement. We
recommended funds that invest in China and emerging
markets, as these have high growth, long-term potential
but will undoubtedly experience high volatility along
the way. |
