Five tips to consider when contemplating early retirement
Since the UK government introduced pension freedoms in 2015 more and more people are looking at the possibility of early retirement.
People approaching that decision point are no longer tied to looking at annuity purchases which, in the light of all-time lows in interest rates, are much less attractive. Investing your own income and living off the income is the alternative.
Talk to an expert
To make the right decision a visit to an independent financial adviser (IFA) is essential. Although the temptation may be to cash in and spend part of a lump sum, looking ahead to how you will sustain your preferred lifestyle means professional advice is needed.
Software for IFAs currently available means they will be able to provide the best tips on how to plan your retirement. Companies such as Intelliflo provide software for IFAs and is worth enquiring how your adviser is tasking this area.
Equities will often make up a large part of your pension pot, but the old adage of what goes up comes down should always be at the forefront of your mind. A range of shares will mean you are less susceptible to market variations.
Consider the risk
Advisers consider risk, such as concentrating investment in a narrow market. Software for IFAs ensures that they can measure an investment pot against that risk.
The cost of managing your investment is also something to consider. Again, technology is driving these costs down and you will want to keep an eye on how much you are being charged for administration of your money.
Manage the losses
Investors often panic when markets adjust, which means you may make losses. The unpredictability of markets means that sometimes you must hold your nerve and not jump from market to market.
Is cash king?
Early retirement may mean for many people that this is the first time they have looked at a major investment other than their house. Cash in the bank may look attractive but interest rates contradict this. Keeping an eye on the stock exchanges will confirm that a diversified investment can out-perform deposit accounts to a startling degree.
Advice can be found at the UK government site and help to resolve any issues which may arise with your existing pension.
The new pension freedoms mean planning ahead is more important than ever.