Have you considered investing in the UK? In this article, we explore how investing in UK equities could fit into a diversified income strategy for your retirement.
Nick Colman, Financial Planning Writer
Last Updated: 11 June 2024
A key part of retirement planning is considering how you’ll create a sustainable and consistent income that can support your lifestyle, wherever possible.
Equities (shares) can play a crucial role in generating income. And with an impressive record of growing dividends over the long term, UK shares and funds could form a strong part of your portfolio.
But there’s still some careful consideration needed. Do equities fit in with your retirement income strategy? Secondly, does your portfolio already include UK investments and would further investment in the UK make you less diversified?
Investments and any income from them can rise as well as fall in value and you could get back less than you invest. This article is not personal advice. If you’re unsure about investing or retirement planning, speak to a financial adviser. Investing in individual shares is not for everyone and is a higher risk approach.
The UK market is home to some world class companies. What’s more, many of the big players operate in sectors known for being stalwarts in portfolios, such as pharmaceuticals and consumer staples though of course nothing is certain. This feeds into their dividend-paying potential, with many businesses boasting impressive records of growing dividends over the long term.
If you plan to use your investments to both generate and withdraw an income from, dividend paying shares and the funds that invest in them could fit in well with your retirement income strategy.
Although investing in the UK could help you generate income in retirement, you should always be mindful of having a well-diversified portfolio. Check you’re not overexposed to one particular region or sector. If you’re close to retirement, reducing the risk in your investments is usually sensible.
If you need an income from your investments in retirement, you might decide to switch your investment strategy. Depending on when and how much income you need, you may start to favour more income producing investments over those that aim to grow capital.
When it comes to withdrawals, this would allow for a more sustainable natural yield strategy. This means instead of selling your investments to fund your income, you’d already have an income built up (which could include the interest paid from bonds and dividends awarded from shares, as well as the funds that invest in them both). However, you need to be prepared for a certain degree of variability with the natural yield strategy as investment performance and income generation is not guaranteed.
As you approach retirement, deciding how to withdraw an income from your various sources is crucial. While the knee jerk might be to look to your personal pension first, it may not be the most tax efficient. You could consider your cash savings, ISAs, and even the State Pension first.
Maximising retirement income: A guide to tax-efficient withdrawals
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