There are many issues when it comes to managing your income once you retire. Assuming you set up a pension scheme (or were enrolled into one by an employer), you will retire with a plan that needs careful management, and over which you have ever-greater control with, thanks to successive Chancellors, ever-increasing flexibility.
As a pensioner, you will have to consider three key areas of risk and your approach to them: longevity, investment and inflation. The longevity risk concerns life-expectancy. Put simply, you may live longer than you expected! If you are a seasoned investor you will be familiar with the concept of attitude to investment risk: your adviser should have regularly gauged this. And the same principle applies as you enter retirement. Although investments are not entirely in your control (as we all know, they can go down as well as up), you are able to decide which level of risk best suits you and your needs. The third area of risk is that of inflation: the purchasing power of your fixed retirement income is lessened over time.
In 2015 pension rules were changed meaning annuities are no longer the default option at retirement. Since this change, the number of annuities purchased has fallen dramatically. However, one advantage annuities offer is a guaranteed income for life. They may also be suitable if you do not wish to take any investment risk, or if you have no dependants or beneficiaries to leave your funds to. But, given that everyone’s circumstances differ, it’s important to make the right choice for you, as it will affect you for the rest of your life.
It’s advisable to regularly review your choices throughout your retirement as your needs evolve and income needs may change. Financial advice can help with this as an adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and provide you with a retirement income strategy that best suits your needs.