How to manage your financial risk

Kalpana Fitzpatrick explains how to make sure everything keeps running smoothly, no matter how bumpy the road ahead

Your expert: you can learn more about money from this award-winning finance editor on the BBC Sounds Money 101 podcast. 

Around 14 million adults have low financial resilience, leaving them at risk of inadequate savings or even debt. But if the last 12 months have taught us anything, it’s the importance of building a strong financial base so we can withstand tough times yet have enough money to enjoy life the way we planned. Let’s take a look at the money moves you can make now to manage your financial risk and prepare for the future. 

Plan for retirement 

If you’re looking to retire in the next few years, it’s important you understand exactly what your pension is worth to avoid the risk of a shortfall in income. 

“When preparing to retire, we recommend ensuring you have an income to support you until age 95, or to age 90 if you are planning your finances as a couple. That might seem like an excessive age to base a plan on, but the reality is people are living longer and one in four people approaching retirement now can expect to live until then,” says John Tait, retirement advice specialist at Standard Life. 

“Thinking about how your life might change in the future may also help you develop a better picture of how much you may need and how much you can spend in the early years,” he adds. 

If you’re not sure how much your pension is worth, ask your pension provider for a forecast. 

For your state pension, go to gov.uk/check-state-pension. If you’re already claiming the state pension, and have low income, see if you’re eligible for Pension Credit by going to gov.uk/pension-credit.

If you’ve had several jobs, then you may have some past pension pots. Take a look at the fees for these; you may find consolidating the pots gives you better value, as long as you are not giving up any guaranteed benefits. If you can’t find your past pension, use the government’s pension tracing service at gov.uk/find-pension-contact-details. 

Did you know you that, if you can afford it, you can continue saving into a pension even after you have retired? As long as you are under age 75, you can pay into a private pension and still benefit from the 20% government tax relief. If you have already accessed your pension, the maximum you can contribute is £4,000 each tax year. 

Ask a professional

Before you make any decisions about retirement, seek advice. According to Royal London, using a financial adviser could make you up to £50,000 better off in retirement. If you’re over 50, go to PensionWise, a free government service (pensionswise.gov.uk). To find an independent financial advisor, go to vouchedfor.com or unbiased.co.uk. Or you can get a free initial financial consultation with Boundless partner Lighthouse; read on below to find out more. 

Invest for income as you near retirement 

With pitiful interest rates as low as 0.1%, many savers have turned to investing in search of higher returns on their hard-earned cash. But as you approach retirement age, have a think about what you want your investments to do. 

“If you need your investments to produce an income in retirement, then in the five years before you start drawing income, you should think about moving into investments that are focused on producing a higher income rather than all-out growth. This can include bonds, equities, and mixed funds,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown. 

“The move to income-producing assets may mean a naturally lower level of risk, but this isn’t necessarily the case. Investment in retirement is about balance: you want to only take the amount of risk you’re comfortable with, but at the same time you need to take enough risk to give your portfolio the opportunity to grow and last throughout your retirement,” she adds. 

Save for emergencies

While it’s important to invest for better returns and long-term income, don’t forget the short term too – this means stashing away around three to six months of income into an emergency fund in case you need it for unexpected costs. Even if you are retired, you should have some money put away into an easy access account for this purpose. Hunt down the best rate at moneyfacts.co.uk or moneysupermarket.com. 

Prepare for the worst 

According to Royal London, 17.6 million people would not cope financially in the event of a major life shock. Be more prepared with these measures: A WILL. Three in five adults do not have a will. Dying intestate means you risk leaving your assets and affairs to the wrong person. Emma Watson, head of financial planning at Rathbone Investment Management, says: “It’s hard to imagine, let alone plan, for a future that you’re not in but spending time now considering what you’d want for your family can save a great deal of heartache for them later on.” If you already have a will, make sure it’s up to date. You can find out more at gov.uk/make-will. 

Lasting power of attorney (LPA)

If you become seriously ill, your next of kin will not be able to look after your finances unless you have an LPA in place. Find more at gov.uk/power-of-attorney. 

Life cover

If you have dependants who rely on your income, life insurance could help protect them financially should the worst happen at any stage in your life. If you’re still working, check what benefits you already have via your employer. 

Ask for help

If you’re not sure how to achieve your goals and minimise risk, a financial planner can help to assess your plans and develop a map to get you to your destination. Your first consultation is usually free. Find a financial planner at financialplanning.org.uk. 

Beware scams

Investment scams accounted for losses of £78 million from January to December 2020, according to Action Fraud. Don’t risk your life savings; check for known scams at fca.org.uk/scamsmart. Find out more at takefive-stopfraud.org.uk. 

Do more with Boundless

How to get your free financial consultation 

To set financial goals, you need professional advice. So Boundless has teamed up with money experts Lighthouse to offer members a free initial financial consultation. As well as that, you’ll have a whole range of complimentary financial webinars at your fingertips. Visit boundless.co.uk/lighthouse or call 0800 085 8590 quoting ‘Boundless voucher’.