I don’t want to work into my late 60s. But my State Pension won’t be available to draw until I’m 67. And the goalposts have been moving — further away. My father started claiming his at 65. And some of those younger than me will have to wait longer still until they’re eligible.
The reason for the slippage is the number of pension-age people is swelling. Many of us are living longer these days. And, somehow, consecutive UK governments need to make policies that balance the books.
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I’m glad they’ve decided to require more working years from us rather than pushing taxes ever higher. And that’s because it leaves me with spare money to invest. Of course, there are risks to making my own investment decisions. But there’s also the opportunity to aim for a higher return on my money. And that could help me aim for an earlier retirement funded from my own investment pot.
My quest for early retirement
One of the main drivers of my plan to build a personal retirement fund is the habit of spending less than I earn. But instead of putting the leftover money into cash savings accounts every month, I’m putting it in tax-sheltered stocks and share investment accounts.
I’ve got a Self-Invested Personal Pension (SIPP) and a Stocks and Shares ISA. But it’s also a good idea to use company and personal pension plans. And I’ve put money in those in the past. One of the main advantages of company pensions, for example, is employers will often contribute money on top of what the employee puts in — and free money isn’t to be sniffed at.
However, with my SIPP and ISA, I’m in complete control of the investments. I select them, buy them, hold them, sell them, and monitor them. And that suits me fine. The process of investing can be fun and absorbing, so that helps.
Active, dynamic entities
My preference is stocks and shares all the way. And that’s because the total returns from shares, in general, have outperformed most other asset classes over the past decades.
Of course, there’s no certainty the situation will repeat in the years ahead. And all shares carry risks for investors. But to me, the businesses’ underlying stocks are active, dynamic entities that have the potential to adapt well to changing economic circumstances.
And other asset classes can’t do that. For example, commodities such as gold, silver, copper don’t do much. They just go up and down in price according to the forces of supply, demand and investor speculation. And it’s a similar story with cryptocurrencies such as Bitcoin. Of course, if they go up they can yield rich rewards.
Meanwhile, owning property can be lucrative but also problematic if ongoing maintenance costs exceed rental and capital gains. And I’d describe bonds, cash accounts, fine wine, art, antiques and other such assets as passive and inactive.
I like shares though because businesses can save their costs, increase their profits, expand, reinvest cash flow into more assets that can then earn more profits, and so on. Overall, I see stocks and shares as the asset class that will be most likely to give me an investment edge in my quest for earlier retirement.