While it is true that most people don’t wake up suddenly one morning thinking they have got to get a pension sorted out, setting one up will probably be one of the most important financial decisions you will ever make.
In the majority of western countries we have aging populations. Occupational pension schemes are not what they once were, and final salary schemes have become a dying breed. All this is exacerbated by the miserable performance of the world stock markets during the 2008/9 financial crisis, and it is possible that some pension funds may never recover.
Planning towards our future financial independence has never been so vital, and saving on a regular basis is key.
The argument for saving regularly towards retirement
Unit Cost Averaging
In terms of financial planning, the golden rule in providing for a secure retirement is starting early. By doing this you will benefit from unit cost averaging. Looking at the chart below it would be easy to think that fund A would have achieved the best return. This would have been true if it were a lump sum investment, but because it was instead a regular savings product, fund B actually made more - a lot more. In just 10 years it made three times more than fund A.
For a more detailed overview of the mechanics of ‘unit cost averaging’ please click here.
The effect of Compound Growth
One of the most compelling reasons to save money on a regular basis is not purely because of the benefits of compound averaging. It is also the immense benefit of compound interest, and how it helps build the pension fund through the effect of interest upon interest. The chart below shows how significant this is towards the end of the savings period.
For a more detailed overview of the effect of ‘compound growth’ please click this link.
In fact in this example over 85% of the actual growth came in the final half of the savings period.
Questor Capital has business relationships with some of the largest financial institutions in Europe which specialize in many forms of international pensions. Generally speaking, these institutions are placed in low-tax jurisdictions offering the investor an extremely portable, tax-efficient vehicle for investment.
Besides the investment vehicle, you also need to know what income you actually require during retirement. This can be complicated as during the years leading up to retirement you would expect a higher rate of return than in the more conservative years during retirement. Then there is the effect of inflation eroding our purchasing power.
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