A pensionless Fool explains his investment strategy.
"In 2008, 45 per cent of self-employed men working full time in Great Britain belonged to a personal pension scheme according to the General Lifestyle Survey, compared with 64 per cent in 1998-99"
Office for National Statistics: Pension Trends report, May 2010
That's a lot of self-employed men without any pension arrangements -- and I don't mind admitting that I'm one of them. However, I do have an alternative plan that I hope will provide me with a largely tax-free and passive income when I retire.
What kind of Fool am I?
After leaving university, I only spent six years in employment before becoming self-employed. Back when I was a corporate creature, I had not seen the Foolish light and, although I did contribute to a company defined benefit scheme, I only paid in the minimum.
When I first became self-employed, some years ago now, money was a bit tight and setting up a personal pension plan wasn't my top priority. However, my interest in investment started at around the same time, and it wasn't long before I realised that I did need to do something -- however small -- to save for my old age.
Pension or ISA?
The first thing to decide was whether to build my retirement savings in a pension or a stocks-and-shares ISA. The tax advantages are similar -- broadly speaking, you either pay tax on the contributions (ISA) or tax on the eventual income (pension), but not both.
For me, the decision to start with an ISA was easy. I can trust myself not to use the money, and I much prefer the idea of remaining in control and being able to decide when and how I retire, regardless of what the government of the day decides to do with pension legislation.
What's more, I'm not alone in advocating ISAs as the best way to build up a lump sum to retire on. You can find more ideas for using an ISA to save for your retirement in this free Fool report, "10 Steps To Making A Million In The Market".
What's in the ISA?
The first part of my plan was simple and relatively foolproof.
I am a keen believer in the attraction of big-cap dividend shares for long-term income. Accordingly, the majority of my portfolio is invested in companies such as Royal Dutch Shell (LSE: RDSB), HSBC (LSE: HSBA), Aviva (LSE: AV), Vodafone (LSE: VOD), GlaxoSmithKline (LSE: GSK) and Unilever (LSE: ULVR) -- in total, a dozen of the biggest and best dividend-payers in the FTSE 100.
This is, of course, a High Yield Portfolio (HYP), as advocated and used by the very Foolish Stephen Bland. In my case, each holding is in a different sector, with an equal amount originally invested. Dividends are not automatically reinvested but left in cash in my ISA. Periodically, I reinvest them into one of the HYP shares, topping up the holdings to benefit from the highest yields but keep the weightings roughly equal.
Is that all?
Not quite. I'm still young enough to want to try and beat the market with outright capital gains and to be able to afford the risk of the occasional loss.
I invest the remaining minority of my portfolio in a small number of value or growth shares that I hope will deliver capital gains over the medium term. Profits made from these investments are split, 50/50, between the permanent HYP, which I never intend to sell, and my capital growth investments.
By doing this, my goal is to get some long-lasting benefit from my gains, when I make them, but still to increase my float for generating further capital gains.
Does it work?
So far, I am happy with the performance of my retirement ISA. My eventual plan is to place all of the money in my HYP shares, which will leave me with a largely passive and tax-free income to enjoy in my retirement.
Of course, I defy anyone to see that far into the future -- but at least I've got a plan that I reckon will deliver me results as good as the average personal pension, without any fees and with the chance of doing much better.
Remember -- if you're not sure how to get started with your own retirement portfolio, then take a look at this free report from the Fool, "10 Steps To Making A Million In The Market" -- it's completely free and well worth a read.
If you've got an opinion (and you probably have), then feel free to leave a comment below!
He avoided techs in the dotcom bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor".
Further investment opportunities:
> Roland owns shares in Royal Dutch Shell, HSBC, Aviva, Vodafone, GlaxoSmithKline and Unilever.