How to invest wisely for retirement

Mathilda Volant

by , Team PensionBee

at PensionBee

01 Feb 2022 /  

woman putting coin into piggy bank.

This article was last updated on 20/07/2023

Investing could provide competitive profits if your risk appetite is up for it. Savings products (like pensions) may invest your money in the stock market with the aim to rise above the rate of inflation and grow your retirement savings over the long-term.

Investing your money may seem complicated. But it really comes down to choosing between guaranteed smaller returns of a savings account or potentially higher returns of an investment product.

Six tips to invest wisely for retirement

There are lots of ways to invest for your retirement, from property to pensions to the stock market, and even fine art! However you choose to invest your money, consider these tips to help invest wisely.

Get debt sorted

Out of sight isn’t the same as out of mind. Research has found that half of adults with debt problems are living with mental ill-health. Getting your debt sorted isn’t just a weight off your mind, but also off from your credit score.

Lynn, a PensionBee customer and CEO/Founder of Mrs Mummypenny, shared her debt story. Facing her problem directly she spent two years paying off £16,000 of credit card debt. By making a debt repayment plan, she’s now debt-free and saving towards a happy retirement.

You can put a debt repayment plan together with help from a debt advisory company, and additional support is available through charities like Citizens Advice.

Plan over the long-term

The saying goes that ‘Rome wasn’t built in a day’, and the same applies to your retirement savings. Investments that are optimised for long-term objectives - like a pension - may outperform shorter-term funds that are at a higher risk of failing.

Here are some long-term investment options that could provide a retirement income:

  • Property
  • Investment portfolios
  • Lifetime ISA
  • Personal pension
  • Stocks & Shares ISA

Two common methods of holding shares are directly (through a shareholding platform) or indirectly (through an investment portfolio). Holding shares directly may require more decision making about buying and selling. Aim to keep track of where your investment holdings are, to avoid running the risk of having all your eggs in one basket.

For a hands-off approach, holding shares as part of a carefully composed investment portfolio may suit some savers better. Often offering more diversification than direct shareholding as it invests your money widely, so you’re not reliant on the success of a single stock to make a return on your investment. Some providers will highlight the previous performance history, though this doesn’t guarantee future returns.

Beware fees

Some platforms and products charge various fees on your investments. Individually they may be small, but stacked up together they can add up. Finding out what fees you’re paying - and switching if necessary - could save you money.

  • Higher fees don’t guarantee higher returns. You can ask for an activity statement from your pension provider (similar to current account statements) and see the costs against the gains.

Some providers may charge for transferring out of their funds - although this could be more cost-effective if you’re consolidating your pension pots. Your pension provider’s fees aren’t the only thing affecting your pension value - there’s also inflation.

Feeling confident

Understanding your risk tolerance is key to investing. You should always feel comfortable with your decisions and confident in the performance of your investments. Of course, fluctuations are to be expected, but these dips shouldn’t damage your investments too dramatically in the long-term.

Cryptocurrencies are gaining wider awareness and have turned some investors’ heads with stories of high returns. But without financial regulation or firm assets defining the value of these cryptocurrencies, they can be very risky. One rule of thumb is to not invest more than you’re willing to lose - especially where higher risk investments are concerned.

Invest with know-how

It can be hard to invest wisely if you don’t know where - or what - your money’s invested in. You don’t have to be a financial expert to find out these things. Ask your pension provider directly for a breakdown of how your investment is diversified.

At PensionBee, simplicity is one of our values. So we’ve got a small range plans to choose from:

  • Tailored
  • Fossil Fuel Free
  • Preserve
  • 4Plus
  • Tracker
  • Shariah
  • Pre-Annuity

All our pension plans are managed by some of the world’s biggest money managers: State Street Global Advisors, HSBC, BlackRock and Legal & General. With each plan you can easily see who manages your plan and how your money is invested.

Tax-free tips

Certain investments can give you even more for your money, thanks to tax relief. If you’re paying into a pension, you’ll usually get a 25% tax top up on contributions up to £60,000 or 100% of your gross salary (whichever is lower).

  • Did you know that you don’t pay capital gains tax on your pension? You’ll pay income tax on 75% of your pension pot and the remaining 25% can be taken tax-free!

In fact, your pension can even cut your tax bill. And higher rate taxpayers can receive an additional relief on their pension contributions via their Self-Assessment - one more reason your pension may outperform other saving products.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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