How retirement planning can change your life
With retirement happening at the end of a working life, all too often we find that it isn’t a priority to prepare for it. This can be especially true the younger a person is, and it’s easy to understand why retirement planning is pushed aside when there are expensive costs that need to be dealt with in the nearer term. Running a car, rent, private health insurance, saving for a house deposit and utility bills are all high expenses that can leave little, if anything, left over.
Yet retirement will approach faster than expected, and with no planning in place you could find yourself facing some lean years on the small state pension, which currently stands at £113.10 per week.
For a lot of people, part of the hesitation to save is not knowing how much to put aside, and being concerned that it needs to be more than they can afford. The irony is that the earlier you start to save, the less you need to put away. On the other hand, if you wait until you are 40 or 50, you will need to save far more.
To remove that concern, remember that there isn’t a magic number, and even a small amount is better than nothing. The cost of one tank of petrol or a takeaway each month would be enough to at least get things moving in the right direction, and give compound interest a chance to work its magic.
A common thought process is that small chunks of money aren’t worth saving. After all, what difference will that sandwich in the canteen make to your retirement? A single sandwich won’t make any difference, but it’s amazing what can add up. As we wrote in a recent blog post, if you spend £6 per working day on lunch, you could be spending in the region of £1,500 a year. If you saved that for 30 years, you would have £45,000 sitting in your account before any interest had been applied. When you consider that the average pension fund used to buy an annuity in 2010 was less than £26,000, that £45,000 looks huge.
Saving is made easier by starting small. That should have a minimal effect on your bank account and provide an easier transition to a saving mind-set. You may also find yourself getting excited as the account begins to grow, prompting you to put more into it. This is easier for some people than others, but if you are focused on putting more aside – regularly or irregularly – then there should be ways to do that. For example, the money spent on a night out could be put into the retirement fund instead, or if you could walk enough to need one less tank of petrol in the car each month, that money could be added.
One pension change in recent years has been auto-enrolment, which is adding workers who earn at least £10,000 to a pension scheme. The current rate of earnings being added is 0.8%, to which the employer adds the equivalent of 1% and tax relief provides 0.2%, taking the total to the equivalent of 2%. By 2018 this will increase to a minimum of 4% from the employee and 3% from the employer, with a further 1% tax relief. The present rate is not enough to provide a comfortable retirement, but will encourage more people to think about their future. You are able to increase your contributions, or you could talk to an adviser and start investing your money elsewhere, such as an ISA.
As you get older, it’s important to have a pension review. This will check the overall performance of your pension, including how much it is growing and what fees you are paying. Think of them like an MOT for your pension, and they can make a big difference to the fund you will eventually retire with. We provide a free pension review as part of our commitment to helping people get the retirement they desire.
There are multiple ways to save for your future, but doing so can be the difference between a comfortable and uncomfortable retirement. Some forward planning in your younger days can help you make the most of your time once you stop working – and that’s something everyone should think about.
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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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