Your retirement may seem like a lifetime away. However, it’s never too early to start thinking about the future – especially when it can be quite costly. Here are our top tips on how to save for your retirement.
Plan to save for your retirement early
Over 12 million British adults still don’t have a pension. It’s never too early to start planning for the future.
The sooner you start planning and saving for your retirement, the better off you’re likely to be too.
Legal & General conducted research on retirement savings. They found that if you were to start saving at the age of 25, you would only need to save £105 a month to achieve a post-retirement income of £10,000 a year by the age of 65. In comparison, if you waited until you’re 35, you would need to save £195 a month. You’d need £405 a month if you left it until you’re 45, and a huge £1,100 if you waited until you’re 55 years old.
You should also consider the rising retirement age into your savings plan. Similarly, if you choose to retire early, you will need another source of income to live off. It’s best to work out how much money you think you’ll need in retirement. Make sure you take into account predicted monthly bills and expenses. Planning ahead will ensure your pension income will be able to cover any outgoings during retirement.
Check how your pension is performing regularly
You should regularly review how your pension is performing. Pay closer attention if your personal circumstances change, such as a change in job. Ensure you know how much your pension is currently worth. Know what the shares are invested in, and how much risk is involved. You may need to do more than you think to save for your retirement.
Regularly checking how your pension is performing will allow you to make sure you’re on track to have enough money to support you through your retirement years. From regular reviews, you can also see whether you might be better off switching pension providers to get any additional benefits.
The best way you can easily keep track of your pension is to keep all the details of your pension(s) in one place, inform your pension provider of any changes in circumstances, such as a new address, and make sure your family know where your pension documentation is kept in case you die before retirement as your pension will form part of your estate.
Don’t opt out of your workplace pension scheme
From October 2018, auto-enrolment will be compulsory for employers, meaning that they have to automatically enrol all eligible workers into a workplace pension scheme. However, all workers have the right to opt out of their workplace pension, this might be tempting to increase your ‘take home’ income but you could lose out later in life on a number of benefits if you choose to opt out.
The amount that you get from a workplace pension is based on your salary, you pay in a minimum amount of qualifying earnings each month, with your employer matching your contributions. If you change jobs, you are able to join in another workplace scheme and/or carry on making contributions into your old pension, or you can combine your old pension with the new pension scheme.
With a workplace pension, you are also usually protected by the Pension Protection Fund should your employer go bust, so it provides sound financial security for the future.
Invest in a SIPP
Are you self-employed, or even looking for a pension in addition to your workplace one? In that case, a self-invested personal pension (SIPP) may be the right option for you.
The money you pay in to your SIPP is placed in shares by your pension provider. As the money is invested in shares, it means there is some risks attached with the value of your pension. However, some providers may move your money into lower-risk investments as you get closer to retirement age.
The final pension pot value depends on a number of factors. It looks at how much money has been paid in and how well the investments have done. It also looks at whether you choose to take the money as a lump sum, in smaller amounts, or as regular payments. You can take 25% of your pension pot tax free, and you then have six months to take the remaining 75%.
Invest in an annuity
To further ensure financial security, you could invest your pension pot into an annuity. An annuity is an insurance policy that guarantees regular income for the rest of your life. There are many different types of annuities available. You don’t have to go with the one offered by your current pension provider.
It’s always best to shop around to find which annuity could be the most suitable for you, The types of annuity can vary from:
- income that is paid solely to you, either for life, or for a fixed number of years
- investment that is linked to where the money is tied in the stock market
- “escalating”, where the amount increases each year to reduce the effect of inflation
Planning to save for your retirement isn’t risk free. If you think you have been mis-sold an investment or SIPP, get in touch with our expert legal team today.