3 top tips for nurturing your nest egg in 2016
January marks the start of New Year’s resolutions and if you’re one of the many people who pledge to begin saving and get their finances in order in the year ahead then your pension can be a good place to start - even if you don’t already have one!
Here are three ways you can nurture your nest egg now to make sure it looks after you later.
Save, save, save!
As life expectancy increases we are spending more time in retirement, so we need more money to maintain a comfortable lifestyle. And with the state pension age also increasing it is even more important to put financial provisions in place and not rely on the state to provide an income throughout retirement.
Making regular contributions toward your pension is essential and the earlier you start saving the better.
Consider the following example:
- If someone saves £200 a month for 20 years they would have a pension worth approximately £75,000
- If someone saves £100 a month for 40 years they would have around £123,000 – more than 2.5 times the amount of money they put away!
A pension worth £123,000 would provide tax-free cash of up to £30,750, a huge sum of money that could be used to tackle debt, support your children whilst they’re at university or pay off the mortgage.
By comparison, if you put away the same sum of money into a bank account you would only accumulate around £66,000, because unlike pensions, regular bank accounts do not have tax advantages such as tax relief on contributions or tax-free growth, they also tend to have much lower interest rates than pensions.
So if you do not already have a pension now is the time to start saving!
Check your pension’s performance
Some people remortgage their home in order to save money, or refinance to a 0% balance transfer credit card, but how many seek to improve the performance of their pension?
A pension review is the first step to understanding how well your pension is performing. Many people are unaware of how much they pay in fees every year, what their money is invested in or how much their fund has grown.
Retirement may seem like a distant event that is too far away to worry about right now. However, you may be surprised to find that your pension could actually be losing value as a result of high fees and low growth, and over time this could amount to tens of thousands of pounds!
You can avoid such loss by having regular pension reviews to assess the performance of your fund, discover if your savings could be performing better elsewhere and make sure you aren’t missing out on growth potential.
Make the most of your new workplace pension
If you do not already have a pension, the introduction of auto-enrolment is a great opportunity to start saving for your future. Many people have already been automatically enrolled into a workplace scheme whereby employees, their employers and the government all contribute.
Once the implementation of this government initiative is complete every qualifying employee will be enrolled. To qualify you must:
- Be between 22 years of age and the state pension age
- Earn more than £10,000 a year
- Work in the UK
Looking after your pension is essential to ensuring that it is on track to provide you with enough income in later life. Two ways of doing this are to have regular pension reviews and to save consistently. To see if your retirement fund could be performing better elsewhere you should seek regulated financial advice.
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Tax treatment depends on your individual circumstances and may be subject to change in the future.
The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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