Save for retirement with these 6 tips
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Your retirement might feel a long way away. But saving for your retirement is the best way to safeguard your future and be able to enjoy your free time doing what you truly love. There are many considerations for securing a comfortable financial future. Find out more getting on track to save for retirement, today.
What are the UK's retirement options
Most countries have a state pension scheme of some sort, which you are entitled to upon retirement or close to retirement age. The details will vary from country to country – so it is good to look into what this might mean for you in the UK. In the UK, the amount of state pension you'll be entitled to will be dependant on how many qualifying years you have, this means how many years you have made NI tax contributions. You'll also want to check things like the state pension age. Even if you aren’t anywhere close to retirement, it is handy to know what the system is where you live. According to a study by Schroders, a good overview on where money comes from retirement is that “state pension schemes are depended on for 19% of retirement income and company pensions for 18%. Europe is most optimistic about state pension schemes, where people expect these to account for 26% of their income in retirement.”
In addition to your state pension, there are also work-based or group personal pension schemes available as well. This is essentially a retirement savings plan with a defined contribution through your employer. Some benefits include tax deferment or reduced tax liability. Because it is managed by your employer, you do not have to worry about the details. But you should still read the fine print initially and know what you are signing up for. In the UK all employers must offer a workplace pension scheme by law. You, your employer and the government all pay into your pension.
Planning for retirement
How old are you? We're not asking to be rude! When making plans about how to save for retirement it is an important question. It is key to remember that the more years that you spend saving, the more savings you can accrue over time.
Most young people don't give their pension much thought, it does all seem very far away, and it's easy to not worry about how you might support yourself in your 70s. But starting early gives you more time to save for your future and experts say that you should already be saving up 10-15% of your gross income yearly, already when you are in your 20s. By your 30s, that amount grows to at least 15%.
But no matter how old you are, it's always better late than never when it comes to pensions. A good rule of thumb is to plan for living on around 80% of your salary. So what will you need to do and how long will you need to contribute to reach this target?
It's hard to imagine what you'll need in reality and it's quite likely that you still need to have a good amount of your own savings or investments to be truly financially secure. If all goes well, you may need a pension income for decades after retirement, so it's important to consider your options as early as you can. Not to mention passing this information onto your own children, and encourage them to be early savers.
Personal savings and investments
Having personal savings is a good idea for anyone, for example building a rainy-day fund. For retirement, you could open a bank account dedicated to your retirement savings. Try to choose a suitable savings account so you can get the benefits of money gathering interest over time. Remember – this is for your retirement. Resist the urge to consider this accessible money or you risk dipping into it whenever you need a financial boost.
Investing your money brings more benefits because you have the possibility of earning more money than you added in the first place. There are many companies dedicated to investments with multiple options of how your money is used and what are the risks vs. benefits for you. Depending on the amount you want to invest, you may want to consult the experts on the best way to invest.
Prioritise retirement savings now
When you have other financial pressures, it can be tempting to keep putting off the future. For example, if you have an emergency debt situation or unexpected life expenses you may well have to prioritise these. However, some of saving for retirement is a matter of mentality – is it important?
The answer is yes, if you want to ensure that your retirement finances are healthy and are going to serve you well in your old age. Maybe you are not in a position to send 15% of your gross salary to retirement savings if you currently have high childcare costs or other big financial commitments. However, that doesn’t mean you shouldn’t prioritise this important investment, what can you spare now? And how do you see this increasing as time goes on? Maybe you could aim for 5% this year and grow to 10% in 2 years and 15% 2 years after that.
Early retirement: Could you do it?
Some studies have shown that lots of people opt to retire a few years earlier than their originally predicted age. But don't feel like a failure if you're not ready to hit early retirement in your 50s. Like most success stories, many of the people who achieve this have special circumstances or access to large amounts of money. And there may have also been some luck involved – such as with successful risky investments.
But what they probably do share is good financial planning and saving for retirement. Learn from the success stories and make positive steps now for your future – whether you retire at age 50 or 75.
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