It’s simple: the sooner you start saving for retirement and the more you can put aside, the more you’ll have to spend when the time arrives. What’s not so simple is figuring out what you need to get started once you’re ready to start saving.
I know that many of you have already started this process, but please forward this on to members of your family who may not have.
- Start With Some Assumptions
Most people are put off planning for retirement because it seems such a long way off and who knows how much they’ll need, or even if they’ll ever retire?
If this resonates with you, you’re not alone. However, these are only assumptions which could change significantly during the years between now and retirement – so stick a pin in a page and start with that.
When do you want to retire? How much income do you want your pension to provide? How much can you afford to put away in a pension right now? Are you a cautious, balanced or adventurous investor?
- How Much Income Will You Need for Retirement?
You can arrive at this decision in a number of ways but, most importantly, it can be refined as retirement gets closer. You can take advantage of simple calculators that can be found online to see what your affordable level of saving would provide, or you can work out an assessment based on your current expenditure – there is no wrong answer.
- Take Advantage of Compounding Growth
With compounding growth, you can earn growth on your growth. The longer your pension runs, the more money you will make, because the growth will just keep rising exponentially. Compounding growth can significantly boost your plan value in the long-run because it will nurture your pension at a faster rate.
e.g if you start saving at 25 (with an annual return of seven per cent after fees), you only have to save around £4,830 annually to reach £1 million by age 65. If you wait until age 40, you’ll need to save £15,240 per year, which is more than triple that amount – all thanks to compounding growth.
To give yourself the best chance of growth, many providers offer a range of funds (which can be difficult to navigate and choose from), but also offer short risk assessments, allowing you to compile a shortlist of investments that suit your appetite for risk.
- Find Out About Employer Contributions
The first thing you need to do is enrol in your workplace pension. You may have seen the adverts on TV but, if you aren’t already enrolled, you may be missing out on free money.
From 2017, for most employees, a company will have to contribute a certain amount to your pension. This is like free money and should be considered an additional source of income which will benefit you in retirement.
Make sure you learn what your plan includes, such as how much you need to contribute and the investment options.
- Keep an eye on costs
The more that is deducted from your pension in charges, the less growth you’ll enjoy and the lower fund value you’ll ultimately have in retirement. Look for low-cost products and funds (such as index funds), so that you’re spending less on fees and enjoying more in your pension.
If you still aren’t sure, or are struggling to get started, you may want to speak with a financial planner – such as us. We can help you organise your personal finances and create the right retirement plan for you.