Three simple steps to a secure retirement income

By Tom McPhail | 25 Jun, 2008 

I am indebted to my friends at Fidelity for some really interesting research on retirement funding, and specifically into the key factors that dictate your retirement income.

There are three factors that matter more than anything else. Other factors will make a difference, but if you get one or more of these three wrong, then you will always be struggling to hit your target.

First and foremost, start young (with apologies for older readers, but if this is already too late for you, then tell your children, your nephews and nieces). The difference between starting at age 30 and at age 40 is such that even if everything else goes in favour of the 40 year old and they enjoy payouts at the top end of projections, they will still only just be touching the worst case projections for the thirty year old. I can’t emphasise this enough: start saving as young as you possibly can.

Secondly and perhaps fairly obviously, the amount you pay into your pension matters. If you don’t pay enough in, then no matter when you start, and how well your investments perform, you will probably still come up short.

Thirdly, consider investing in equities. Although values will go up and down over time the risk can be worth taking. Comparing 100% equity investing with 100% in bonds over a 35 year term, the bottom end projections were almost identical for both asset classes, but the top end projections for equities were massively higher than for bonds.

Below these factors are others that do matter; not least is the fact that a good fund manager can make a substantial difference to your retirement income, but it will be of little comfort if you haven’t started young, saved adequate sums and invested in equities.

Please note, past performance is no guide to the future