Page 70 • The HERALD • 7th August 2025 v WE’VE BEEN YOUR LOCAL SINCE 1994 v ASK A PROFESSIONAL Last month we shared Part One of our Guide to Planning and Preparing for Retirement. We covered many important steps needed to make the very best of your retirement. Here are the remaining guidelines for you. Exploring additional income streams Beyond pensions, consider other assets that might provide income during retirement. ese could include cash deposits, share-based investments or rental income from property. Where are your pension savings invested? Understanding the investment of your pension savings is crucial. Individuals can in uence how their money is invested when it comes to personal pensions, stakeholder pensions or self-invested pension plans (SIPPs). Pension providers typically o er a range of investment funds designed to manage your investments over the years leading up to retirement. Diversifying your investments is a prudent strategy for managing risk, as it spreads your potential exposure across di erent asset classes. Determining the right pension fund Choosing the right pension fund requires careful consideration. It’s generally advisable to allocate your investments across di erent assets, sectors or regions rather than concentrating all your resources in one area. Basic managed funds can achieve this diversi cation for you. Assessing investment style Your investment style is crucial in determining your fund choices. If you are cautious, you’ll likely lean towards lower-risk assets. Conversely, those with a high-risk tolerance might opt for higher-risk assets, expecting potentially greater returns. A balanced approach includes a mix of both high and lowrisk assets. Active vs Passive Funds A signi cant debate in investment circles is the choice between active and passive funds. Active funds rely on fund managers to select shares believed to outperform the market, while passive funds, or trackers, follow a market index. Passive funds o en have lower costs due to minimal management, which some investors nd appealing as charges can erode returns over time. Deciding on pension fund changes As you plan for retirement, your fund choice should align with your stage in life. Young professionals or those with a higher risk appetite might select di erent portfolios than those nearing retirement, who may prefer stability and the certainty of an annuity. If retirement is less than 15 years away, consider reallocating some investments from shares to bonds and cash to reduce risk. Planning your retirement income Evaluate whether the combined income from your pensions and State Pension will su ce for your desired retirement lifestyle. Generally, you may need around two-thirds of your preretirement salary a er tax to maintain your lifestyle, though individual needs vary. Boosting your pension contributions Planning for retirement involves more than just setting aside a portion of your income; it requires strategic thinking about maximising your pension contributions. If there’s a likelihood of a shortfall in your future pension income, it’s prudent to consider increasing your pension savings now. Even minor adjustments to your contributions can have a notable impact on your pension pot, thanks to the power of compounding interest. The carry forward rules further support this strategy, allowing you to utilise unused allowance from the previous three years to maximise your contributions where you have su cient relevant UK earnings to support the contribution and obtain tax relief. Maximising tax benefits on contributions Another crucial aspect of boosting your pension is understanding the tax relief available on pension contributions. For higher rate taxpayers, this can be particularly advantageous. By using selfassessment, you can reclaim higher rate tax relief, which e ectively increases the amount of your contributions that bene t from tax incentives. Basic rate taxpayers have their Guide to Planning and Preparing for Retirement (Part Two) by Michael Osman, Oyster Financial Planning Continued on page 71
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