Retirement investing: Prepare to ‘work longer or accept a lower income’ expert shares | Personal Finance | Finance

Head of financial planners at Vanguard forewarns investors that expected future returns may mean they have to work into their planned retirement years. Sharing his insights exclusively with, Mr Norton explained the unfortunate trends emerging for retirement investors.

James Norton, head of financial planning at Vanguard, shared a pessimistic view, warning investors of consistently decreasing median return expectations. 

He explained: “An investor in a portfolio with 60 percent invested in global equities and 40 percent in global bonds would have achieved a return of almost 11 percent a year between 1970 and 2020.”

When it comes to investing, the general rule of thumb is to be patient as long as possible: the longer an investment is left to compound the higher the returns generally are.

Getting an 11 percent return on the 50 year investment Mr Norton noted may not seem like a cause for celebration, but for those that an investment inclined this return rate is quite healthy. 

It is worth noting that in every investment there is capital at risk and expected returns are not guaranteed. 

However, those making their first investments are generally advised to look at past trends as future indicators, bearing in mind that fluctuations and market variables mean these trends don’t necessarily represent future returns precisely.

The problem for newer investors, such as those just having entered the workforce or only considering retirement investments now, is that these returns seem to be following a negative trend. 

Mr Norton added: “That same portfolio would have returned around eight percent a year from 1990 to the end of 2020.”


Investing from around 1990 would mean that those affected by this three percent drop in return are on the cusp of needing to withdraw their retirement investments in the near future. 

Estimated to be in their 50s now, this three percent drop can mean the difference between having a comfortable retirement with a few luxuries and barely making ends meet every month.  

Mr Norton added onto the disparity, noting: “Our median return expectation for a 60/40 portfolio for the next decade is nearer 4 percent a year.”

So while those affected by the three percent drop may have to relook their finances, anyone investing for their retirement for the next decade should be reevaluating their investments to make their money go as far as it possibly can in these circumstances. 

Mr Norton explained the effect this downward trend is likely to have on those with a good decade or two before retirement: 

“That means investors are likely to have to invest more each year, work for longer or accept a lower income in retirement.

“Whilst that is not an overly positive picture, being forewarned does provide the opportunity to take action early and address any potential shortfall.”

He added: “Unfortunately there are few quick and easy ways to save for retirement.”

It’s recommended to start saving and investing for retirement as early as possible in one’s life, generally as soon as they start working. 

Additionally, contributing as much as possible, bearing in mind any potential limits that one has on their pension contributions or if they are looking to make use of any tax breaks on investments. 

Consistency is also suggested as one of the keys to creating a solid retirement fund, by contributing on a regular basis and a consistent amount.

Reinvesting profits from any returns can also compound one’s returns when they ultimately take out their investment. 

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