Could you save more money and retire richer?
Close your eyes and picture your life 30 years down the line. Do you like what you see? Perhaps you have paid off the mortgage and car, the children have moved out and your ample free time is spent either with the family or catching up on the sport, and annual holidays to look forward to.
Perhaps you are living abroad, spending your mornings gazing at the waves lapping the beach, the stress of working life now a memory.
Or perhaps you are struggling to make ends meet, unable to afford full retirement and worrying what the future holds.
If you are not on track to achieve your vision, you should ask yourself “What can I do to have the retirement I deserve?”
For many people, the size of their pension will determine their main retirement income. Equity release is also a popular product, but it can end up being very expensive and there are things you need to know about equity release for retirement income.
If your retirement income will be from a physical pot of money – rather than equity or a final salary pension – then your priority is to make that pot as big as possible by the time you need it. Okay, it’s stating the obvious, but there are different ways to save, and some ways can give you significantly more output than others.
You can increase each contribution without paying more money
Imagine it’s Saturday morning and you see the latest bank statement beneath the letterbox. You open the envelope – mild apprehension as you try to guess how much money you have left – and see the balance is £500 larger than you expected.
“Where’s that come from?” you ask yourself.
After checking with your family that they haven’t added it, you call the bank. They confirm that it is real money and you don’t need to reimburse anyone. You have a tax rebate, and it feels great.
We all like a tax rebate, and we love to save a pound here and there as well. So if there was a way you could save into a pension and receive extra money as a result – sometimes more than doubling your own contribution – wouldn’t you do it?
Actually, there is a way…
Pensions have incredibly generous incentives – if you pay into one, the government adds the income tax that you would have otherwise paid.
By saving into a pension, you automatically have more money saved than if you stashed it in an ISA or bank account. It can get even better, though: if you are in a workplace scheme – which millions are as a result of auto-enrolment – then you will also receive employer contributions.
In qualifying schemes, employers will ‘match’ your contributions to a defined limit, such as 5%. So for every £1 you put in your employer will add another £1, up to 5% of your salary. This means that, for a basic-rate taxpayer and including tax relief, for every £80 you put into a pension, your fund grows by £200. It looks like this:
Sounds good, but I don’t have much money to save
It would be fantastic if everyone had enough extra money that they could save aggressively all of the time, but that isn’t the case. Some people delay saving with the intention of putting money away when they have more of it – but what if you never get more of it?
Expenses continue throughout life, and it’s not unusual for people to take on more commitments as their income grows – so even as the salary increases, there is still not enough for saving.
The only way around this is to decide that saving is important, and begin immediately. You don’t need to save huge sums to make a difference. Small sums over a long period of time can add up to impressive amounts, as compound interest can generate significant growth on your contributions.
Figures from the Money Advice Service highlight the power of saving small sums rather than waiting to be able to tuck away more:
- Saving £200 a month for 20 years would generate around £75,000
- Saving £100 a month for 40 years would generate around £123,000
Figures based on 5% growth with 0.75% product charge
That’s a difference of almost £50,000!
You can also try and increase the amount of money that you can save by evaluating your outgoings and getting rid of budget concerns once and for all.
Keep on track
It’s important to keep track of your pensions over time. You can then avoid a nasty shock when you reach retirement if your fund has not performed as well as you had hoped. You could find that your older pensions have a toxic mix of high charges and poor growth, so your wealth could actually be eroding rather than growing. Every day in pensions like these is a day that your money is losing value, so it is essential to monitor their performance sooner rather than later.
Are you currently saving?
Calculate how much more you could be saving now.
Call 0800 304 7288 for a friendly chat about your pension
*Based on a £50,000 sum growing at 6% annually before charges of 0.5% and 1.5% are applied.
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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