I am retired and have cash up to about £6,000 that I could invest. I am 79 and not sure what to be looking at, obviously interest rates are very low currently. I do not need an income at present from my investment, do you have any general principles that I should pursue?

John

Tom Selby, AJ Bell Head of Retirement Policy says:

Whether you are 19 or 79, there are certain key principles that you should consider when deciding what to do with your hard-earned savings.

For most people, regardless of age, the starting point will be ensuring they have a ‘rainy-day’ fund in case of financial emergencies. This should provide you with a cushion in the event something unexpected happens, such as your car breaking down or needing to pay for a new boiler.

Aiming for enough to cover three to six months’ fixed expenses is a sensible starting point.

If this sounds too steep then just save what you can afford, making sure to shop around for the savings account paying the best possible interest rate to at least mitigate against the impact of inflation.

If you are looking to the longer term – and have already built up a cash emergency fund – then investing in stocks and shares can be a great way to grow your savings. This is particularly valuable in a world where inflation is running hot and interest rates on cash remain low.

When investing, longer term usually means you plan to leave the money untouched for at least five to seven years. For anyone with a shorter time horizon, stocks and shares are unlikely to be appropriate.

The reality of mortality means that the older you are, the less likely your time horizon will be long-term – particularly if you have underlying health conditions.

To give you an idea, the ONS life expectancy calculator suggests a 79-year-old man can expect to live, on average, to age 88, with a 1-in-4 chance of reaching age 92 and a 2.6% chance of celebrating their 100th birthday.

As you get older, inheritance tax may become a more important consideration – particularly if you have loved ones you wish to pass money onto.

If your time horizon is longer-term, think about your overall goal and the risks you are comfortable taking, and make sure where possible you invest in a way that minimises both the tax you pay and your costs and charges.

While from age 75 you are no longer entitled to pension tax relief, ISAs remain a tax efficient way of saving and investing, benefiting from a £20,000 annual allowance, tax-free withdrawals and tax-free growth. However, any assets held in ISAs will form part of your estate on death.

Diversification is also crucial for those looking to grow their fund over the long term. This just means spreading your money around different types of assets around the world, so all your eggs aren’t in one basket. You can do this yourself or pay a fund manager to do it for you.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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