If the title of this blog has filled you with dread, you are not alone. In fact, as a keen runner myself the thought of running a marathon certainly doesn’t fill me with joy.
If you’re pension knowledge isn’t up to speed, have a read of our topic guide ‘An Introduction To Pensions’ here.
It’s the best analogy I could think of so stay with me…
Saving for a pension is much like running. Or running a marathon actually…
Let’s start at the beginning…
You could ignore all the experts and do everything yourself. For some people, this will work. But for most runners, this process will end with an injury before race day (I know from personal experience). Bringing the analogy to investing, this could be an inexperienced investor being told by their mate down the pub how to invest their pension.
Now, I know plenty of clients that did their own thing and were handsomely rewarded. I know more that have been burnt and should have taken advice before proceeding.
Most sensible people will at least do some research before starting their marathon training. Online training tools and plans are available for free. Much the same with pensions – there are vast amounts of knowledge available online with calculators and tools to help you establish where you are heading for retirement.
If you’re taking it more seriously, you might engage a running coach or pay for an online training programme. If you’re slightly more ‘mature’ and more susceptible to injury, this becomes even more important as the coach will look at all components to ensure you cross the finish line! The same goes for pensions… if you’re closer to retirement, it’s often worth engaging an expert, as your funds could be more susceptible to an ‘injury’ such as a stock market crash. Much like a financial adviser, a running coach will work with you to create specific goals and ensure you remain on track.
So where do we start?
- Fitness test – With a marathon training programme, you should establish where you are before diving straight in. With pensions, you should establish how many pensions you hold, which companies hold them, where they’re invested and the charges associated with each pension. You could then use various online calculators to work out where you are heading – are your current contributions enough to retire at 60, for example?
- Building a base – The first step in a running programme will be building a base. Lots of easy miles but with some speed and strength work included. You won’t see massive changes here, but it’s incredibly important to create this base fitness. This is where your pension begins and like running, the earlier you start, the easier things will be in the long run…
Winter miles = Summer smiles as they say!
Think of the base phase as your 20’s and 30’s where you save what you can into a pension, but most importantly you must save on a regular basis!!! Much like base training for marathons, you won’t see huge changes during these early stages in your 20’s and 30’s. The important thing is to remain consistent and build the base. Think of speed work as increasing your pension contributions and the strength work as perhaps selecting a higher risk or ethical fund.
- Preparation phase – Mostly endurance running with long, slow runs but increasing the strength and speed work too. Much the same as a pension fund – continuing to save regularly but increasing those contributions further. Also, you’re getting to the point where it might be worth engaging a financial adviser to finalise your plans, consolidate pensions and seek out the best returns – but not essential. This is likely during your late 40’s and 50’s, where you will start seeing much larger growth in your pension schemes simply because the overall pot is bigger.
- Peak phase – Now we are getting serious! The endurance work can reduce slightly, but the speed work increases. Your pension should have grown nicely, but now is the time to fine-tune things. Get those contributions increased even further if you can and ensure you’re invested in the right place for the big dance (your retirement!).
So, you made it to the start line (the start of your retirement) and with all the correct preparation, you should reach the goal you set out to achieve – for running, this might be a sub-4 hour marathon. For pensions, this might be retiring at age 60 or having enough in your pot to provide an income of, say, £25k per year.
But, just like completing your first marathon it doesn’t stop there. Your pension journey doesn’t stop at your retirement date. Especially with all the new flexibilities of personal pensions, you will need to continue the training and monitoring the performance of your pension to ensure it lasts as long as you’d like. Like many runners, or whatever your chosen sport/hobby, it’s something that will remain with you for life. If you want to be successful in your chosen field, just like your pension you must spend time nurturing it, and you will achieve your goals.
I hope you’ve enjoyed my terrible analogy and any questions; you know where to find us.
Oliver
*This blog is for information only and does not constitute advice.
