It doesn’t matter if you want to buy a new car, buy a new computer or even a new suit or dress, you will want to make the best decision possible so you not only get value for money but you want to make sure you are buying the right thing in the first place.
So, if you invest a lot of time and energy making sure you make the right decisions in your everyday life, why don’t you put the same amount of time and effort into making the best possible decisions with your pensions? After all, your pensions are probably your most important financial asset second only to your house.
Perhaps, you do put a lot of time and effort into looking after your pensions - if you do- well done, and you can stop reading this article. However, if you don’t spend time looking after your pensions then please read on.
Personally, I think the best way to make better retirement decisions is to work with a financial adviser, but I would say that anyway. I promise not to hark on about the importance of financial advice but instead, I will share with you with some of the guiding principles that I use to help me make better decisions.
Before I talk about these guiding principles, I want to make a few comments about the advice process.
Many people are put off by the term advice because it comes with a lot of baggage. Some people hear the word advice and immediately think it’s expensive and complex. Other people think advice only benefits the adviser, while other people may think they can do it themselves.
Some people think advice like going to the dentist where you have lots of painful things done to you. But if you get advice from me it is a friendly and worthwhile experience – there is no pain and there are no nasty surprises.
I have been advising people about their retirement options for over 25 years and I confess to sometimes finding it very difficult to decide what is the best solution for my clients because there are so many different options and moving parts. If I find it difficult, it is simply too difficult for most people to make the right decisions without the help of a competent adviser.
I often describe what I do as helping people through a logical decision-making process. This means understanding the key issues and then considering all of the relevant options until we jointly decide on the best solution.
Often, I can’t tell you what the right answer is because there is not necessarily a right answer only the choice between different options based on personal preference. Therefore, it is important to work together to make sure that the advantages and disadvantages each option are fully understood and take account of your personal circumstances.
My logical decision-making process is based on a number of guiding principles including:
Separating the strategy from the tactics is always a good start. By this I mean start by looking at the longer-term planning issues rather than diving straight into short-term solutions.
Strategy involves working out what your long-term objectives, goals and priorities.
Tactics are concerned with the actual solutions e.g., pension or annuity plans.
In reality, it is very tempting to take a tactical decision to access your pension pot as soon as you can and take the 25% tax-free cash.
However, on reflection, it might be better to take a strategic decision and defer accessing your pension until you actually retire and need the cash and income.
One of the reasons why a lot of people find it hard to make the right financial and retirement decisions is that they focus on the short-term tactical solutions rather than consider the longer-term planning issues.
A good financial adviser will help you plan ahead and articulate your financial and personal objectives and arrange the most suitable solutions for your circumstances.
In subsequent articles and broadcasts I will consider the other guiding principles which I take into account when giving advice and taking clients through a logical decision-making process.
Before I go, I have one last guiding principle – Don’t procrastinate or bury your head in the sand.
Don’t put off making decisions or starting the planning stage because the sooner you start making decisions about your pensions and retirement plans the better off you will be.