Saving for retirement (without pension)

ftbworried

Hi

I'm 22 and due to leave uni in June. I know it's better to save for retirement early, so what better time than now? However, I am inclined not to put money into a pension for a number of reasons.

1) My chosen career path is mainly based abround fixed term contracts and funding by research grants, therefore there's no company pension option for me.

2) Having just witnessed my parents endownment shortfall, I am EXTREMELY cautious about putting money into something that isn't guaranteed to be worth at least what you paid in.

So, there we have it, I'm not taking out a pension. However I do need to save for my retirement. I'm assuming the best option is to go for some kind of high interest savings account with a better rate for restricted access? Would anyone consider government bonds (I dont really know what these are- but I heard that their value is guarenteed)? Is there any other way of ensuring a high return yet guarenteed to not decrease (64 thousand dollar question i guess!)?

Also, to retire on a salary (which will be the equivalent) of £10k pa ~ish, how much do you think I should start saving a month?

Thanks for your help

Charlton_Taz

If you want to save in cash etc as you want to guarantee your capital you can still save it within a pension. A pension is just a savings vehicle...it doesn't have to be in shares!! That would mean you would get your tax relief too and as it was locked away you wouldn't be tempted to spend it1

ftbworried

Oh right. I see (as you can tell I know NOTHING about pensions). So are there specific pensions that are guarenteed (i.e not invested in shares)? Who are the best providers?

Thanks :-)

EdInvestor

Is there any other way of ensuring a high return yet guaranteed to not decrease

There used to be a product which supposedly did this.It was called a With profits fund. Most endowments were invested in these funds.

They worked for a while, but eventually they turned out to be fools' gold.There's no such thing as a free lunch.

It is possible to get a reasonably high return with low to medium risk.But guarantees always have to be paid for with lower returns, one way or another.

I would suggest that you did some reading about how to manage risk - especially though the system of "asset allocation" where you divide your savings into a mix of assets ranging from nil risk to higher risk and then look at the overall returns.

EdInvestor

Almost all pension providers will have a Money market or Building Society fund you can put your money in.

But the returns are low as you can see:

Pension cash funds

Charlton_Taz

Not sure to be honest.......but i know when I've looked at a stakeholder plan for my other half (I think we were looking at Standard Life) you can select what funds you want to invest e.g. UK trackers, US growth etc etc.....but one of the choices is a cash fund (which is just a savings account with a posh name). In terms of best pension provider....I have no idea I'm afraid..I have just joined my company scheme wherever I have worked. I just know that if you choose you can invest in cash!!! Sorry I can't be of more help!

dunstonh

So are there specific pensions that are guarenteed

No in normal personal or stakeholder pensions. There are low risk funds and high risk funds and those in between. If you look at SIPPs then you can but it wouldnt be worth it. Certain other investment products with guarantees could be placed into a SIPP but you would have to question the reasons for doing this.

You also have to understand that you cannot compare endowment shortfalls (which for many are now getting better and going back on track) with pension investing. Endowments as a principle is actually still a good idea. The problem was the charging structure and the lack of investment porfolio planning within them which couldnt adapt when the UK economy went from high inflation boom/bust to low inflation and steady. Modern pensions do not have the problem.

Who are the best providers?

Each has it's pros and cons depending on a range of factors.

We had a stockmarket crash in 2001 that lasted until really a couple of years ago. Any valuations after a crash are going to be down. However, 5 years later and most stockmarket funds have recovered with the majority now showing healthy surpluses. Indeed, having a stockmarket crash early on in long term savings plans, including unit linked endowments, is a good thing. You get to buy units after the crash much cheaper and it is those units that will go on to make you the most money.

If you stick to a cash deposit earning you the same in line with inflation you wont be making any money. It will just be maintaining its value in real terms. If you have concerns with risk, then take less risk. However, don't take no risk.

If you have a car crash, do you never drive again?

ReportInvestor

ftbworried wrote:

are there specific pensions that are guarenteed (i.e not invested in shares)?

Pensions not invested in shares at all are likely to "guarantee" you retirement poverty.

Pal

ReportInvestor wrote:

Pensions not invested in shares at all are likely to "guarantee" you retirement poverty.

While I appreciate the sentiment (note the thanks), this is a touch sweeping for my liking. What about property funds as a reasonable bond/equity hybrid?

ReportInvestor

I considered mentioning property funds but wanted to keep it simple (note the "not invested in shares at all). So of course you are right.

BTW is there any point investing in low yielding bond funds with 1% charges rather than directly into real bonds?

EdInvestor

BTW is there any point investing in low yielding bond funds with 1% charges rather than directly into real bonds?

It's quite difficult (though not impossible) for retail investors to invest in individual corporate bonds ( as opposed to gilts, no problem there.

Brokers will quote on them if you ask but there's not a lot of research around.

https://www.bondscape.net is a useful site.