What the Periodicals Say.

Most of us can expect to live twenty years or so after retirement, and leisure activities are mostly labour intensive - going out, travel, hobbies, necessary trips to the doctor and dentist and the final cost of long term residential care. These all have a higher inflation rate than that shown by the Retail Price Index, (RPI).

However even an inflation rate of 2% a year, (or twice what it was during the 19th century), will, over twenty years, have a significant impact on the purchasing power of retirement incomes. The poor level of financial education means that even managing directors of substantial public companies lack the skills to manage their own retirement affairs, and need financial advisers. Sadly, whether called private bankers, stockbrokers or IFAs, too many of these are 'product pushers'.

Concentrate on investment strategies, not tactics.
One of the largest and most successful of America's pension funds is that of university and college teachers. Economists especially appreciate that the world's wealth compounds over the decades, with the consequential business profits driving stock markets ever upwards. They also know that attempting to 'time investment' - the apparently easy achievement of buying low and selling high - simply gives away capital to brokers and bankers; smart money buys and holds its investments.

This enables investors to take advantage of the long-term trends shown on the world's stock markets, at the least cost in transaction and management fees. This is a practical lesson for those about to retire, and concerned about their investment income.

But how to find a good adviser?
Money Management runs the Register of fee based IFAs but, as Ken Hart of Clifton Consulting reports, there is an understandable reluctance to pay fees of between £100 - £150 an hour. Paying for advice out of product commissions seems so much easier, and how good is the advice anyway? For some years Clifton has run retirement seminars for large British companies and jointly with the Workers Education Authority, and investment seminars for Expatriate workers. The fears expressed by participants in both are depressingly similar:

i.   How to find an honest and competent adviser?
ii.  How to ensure enough retirement income to maintain present life styles?
iii.  How to afford long term care, if the health of either partner deteriorates that badly?

Understanding Diversification
Participants are organised into groups of five or six and prompted to identify those investment issues that concern them most. Each group is then required to invest the free cash of a typical retired couple, while also identifying the commissions and other costs that will deplete this capital before the compounding of interest can exert its magic.

But the groups must invest the money in three different 'boxes', which means coming to terms with the nature of different types of investment. Box one is the emergency fund, but also available for unplanned pleasures such as an extra holiday. Box two is investment for day to day income, combined with the capital growth needed to top up box one and meet capital commitments such as a new car, or repairs to the home. Box three is long term investment for capital growth with its income reinvested; capital in this box is used only to supplement the capital of box two, and so maintain the needed level of income.

(Source: - Money Management).