There was a time when we used to call it Pension Planning rather than Retirement Planning as pensions were by far the most dominant vehicle used to generate income beyond work.
Whilst pension remain the main source of income for many people, the term Retirement Planning is now much more appropriate as many different types of assets can be used to achieve a successful retirement. Whilst I have no doubt pensions will remain the bedrock for some time to come, an issue that cannot be avoided is the legislation that accompanies pensions and how often this changes.
For example, in most circumstances pensions can currently be accessed from age 55, however, this is set to rise to age 57 by 2028. Also, I read an article recently about the Centre for Social Justice’s suggestion that the state pension age is deferred to age 75 and therefore this could conceivably mean pensions are not accessible until age 65. Clearly, I have no idea whether this will or won’t happen but it does highlight the importance of diversifying by including other assets such as investment ISAs. Property is another asset class that could be used either by owning residential buy to let or our own homes from which we may release equity or downsize from during retirement.
An asset not often considered, however, is our “human assets”. This is our ability to earn money which may be needed to support us in retirement. Increasing our human assets may also provide a sense of purpose and direction in retirement which could be just as important as the financial benefit particularly if retirement lasts for many decades.
Harry Markowitz said that “the only free lunch in investing is diversification” and I believe this could be just as easily used when describing the different assets we might use to generate income in retirement.