Many of us have got things in mind we’d like to do when we retire – whether it’s travelling the world or simply doing more of what you love. But how can you save enough for a decent retirement… without having to give up what makes life good today?
Here are five simple steps you can take to boost your chances of getting the retirement you want:
You’d expect a pensions company to say this, right? But the fact is that while pensions aren’t the only way of saving for retirement, they’re built for the job. Plus they come with benefits you won’t find elsewhere.
For a start, if it's a workplace pension there's a good chance your employer will help you save. And as an added bonus, the government gives you tax relief on the money you pay in, helping your savings grow more quickly.
1. For every 80p you pay
into your pension...
2. ...the taxman adds
20p in tax relief.
3. This means you
end up with £1 in
your pension pot...
4. ...helping you
save more quickly.
This example shows how tax relief works for basic rate tax payers. Higher and additional rate payers may be able to claim even more tax relief through their self-assessment tax return. This information is based our understanding of 2016/17 tax rules. Tax rules can change, and your tax treatment depends on your individual circumstances.
If you're employed and your employer tops up your pension plan, they might chip in a bit more if you do too. Some employers will up their contributions if you increase your payments too (usually up to a limit). This is effectively free money, so – if you can afford to – it makes sense to make the most of it. Yes, it isn’t cash going into your pocket right now, but it’s money going towards your future nonetheless.
As we discovered in our recent Family Finances study, only 14% of 18-24-year olds currently have a pension (rising to 40% among 25-34-year-olds). Yet early on in your career is when it’s easiest to make a big difference to your pension pot – even through small changes.
The sooner you pay into a pension, the sooner you’ll start receiving tax relief from the government – and any contributions your employer adds. Your pension pot also will have longer to potentially grow in value. And if you put things off, you’ll probably have to pay in a greater proportion of your salary just to achieve the same result.
The money you pay into your pension is invested. And exactly where it’s invested can make a huge difference, so it’s worth finding out where your money is going. The better your investments perform after charges, the bigger your pension pot will be.
With many pension schemes you can change your investment choices free of charge. Don’t like where your money’s invested now? You can change it. Just remember that if you do switch funds, it’s important to pick ones that suit your circumstances and attitude to risk. If you’re unsure what to do, you may want to speak to a financial adviser.
The value of your pension investment is not guaranteed and can go down as well as up and you could get back less than has been paid in.
One of the best ways of keeping your plans on track is to keep an eye on your pension. That way, you can check whether your investments are performing OK, and that you’re not paying too much in charges. These days, you can often manage your pension online, making all of this really easy to do.
When you’re young and concentrating on your career, it can be tough to think about the future. But if you want a to enjoy yourself later in life, too, taking steps like these is a great way to start.
This article is not intended to give advice or a personal recommendation. If you’d like a personalised recommendation based on your circumstances, you should seek financial advice. You can find a financial adviser in your area at www.unbiased.co.uk
Wondering what your lifestyle might be like when you retire? Use our Shape my Future tool to find out by answering a few simple questions.
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