Common misconceptions about pension planning

When it comes to pension planning, there’s so much to consider if you want to devise the most effective plan for your finances.

That said, there are also many misconceptions surrounding pension planning, which can often concern investors.

Therefore, we’ve put together this article to offer some clarity on a few of these common misunderstandings, and give you a more accurate picture of how you can plan for your pension and be ready for retirement.

Some of these common misconceptions include:

• You must be nearing retirement in order to plan for it

A common thought that many investors share is that you only need to start planning for retirement when you’re much older and nearing your retirement age.

The truth is, you can and should start pension planning as soon as possible. Taking the initiative earlier in life gives you a clear and well-prepared approach to your retirement, and also allows you to maximise the funds you put towards retirement.

As with any type of plan, the sooner you can establish what you need and how to reach it, the more chance you have of achieving a successful financial outcome.

Therefore, if you have goals for your retirement, regardless of your proximity to your retirement age, you should start considering pension planning right away.

• Pension planning needs to be done alone

Another common misconception about pension planning is that you need to plan and execute this process alone.

We recommend the exact opposite, as obtaining guidance from a professional financial adviser is one of the most effective solutions for any investor.

Financial advisers are by nature highly experienced at pension planning, and can typically offer you appropriate recommendations for your specific financial situation.

They’ll take the time to understand all the many aspects of your finances, including your income, various needs, and even concerns or obstacles you might be facing.

This will all help your adviser offer tailored advice for your plan, so it’s built around your unique circumstances, just for you.

• The simpler your plan, the better

You might be thinking that a simpler plan will be more effective to follow. While your plan needs to be clear and achievable, it’s in fact more beneficial to have a fairly detailed plan.

The more comprehensive your plan is, the easier it will be to put it into action and achieve your pension goals more efficiently.

With your adviser’s help, you can establish a variety of goals you want to hit with your pension, and they’ll ensure each goal is both beneficial to your wealth as well as being realistic to achieve.

Once you’ve refined your goals, your adviser can then help you outline a range of essential steps that will lead you towards reaching these objectives.

For instance, one of your goals might be to have a certain amount in your pension pot when you retire.

Your adviser can help you implement the right pension contributions to grow your savings, while sheltering as much of your money from tax as possible. By optimising your investments, you can build your wealth more effectively for retirement.

• You only need to make one, finalised plan

It’s also a common misconception that each individual only needs to form one, finalised plan, and follow it for good.

While your initial plan is crucial, you should be able to adapt and evaluate your plan regularly, to ensure it’s working best for your evolving financial situation.

This is why you may wish to consider ongoing financial advice. Your wealth manager will ensure your plan is regularly reviewed to help you navigate any potential impacts on your finances that may arise.

For example, this could be changes in the financial markets, tax rate changes, or any alterations to your personal life – career, dependants, etc.

A regular review of your circumstances can give you a pension plan that’s both flexible and effective, to keep you on course for achieving a successful financial outcome for when it’s time to retire.

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Please note, the value of your investments can go down as well as up.