Are you realistic about retirement?
Research shows most people are not saving enough for retirement. People need to face up to their financial circumstances and take action rather than bury head in sand
Government pension provisions are dwindling. Life expectancy is rising. The cost of living is increasing.
All factors that add up to one inevitable outcome; an increased need to save for retirement.
Yet research shows that around 90% of Brits are not saving enough for their retirement; with the average person falling short of their ideal retirement income by £23,000 (source: Money Wise).
In light of recent changes to the state pension and the abolition of the default retirement age, many of us will have to work more years and wait longer until we can access the state pension, with some questioning whether any state pension provisions will be available at all for future generations.
Despite the fact that alongside auto enrolment, pension freedoms have thrust retirement savings vehicles into the limelight, it still seems that we like to think of retirement as being a dim and distant future away. For others, pension contributions are simply forced to the bottom of the pile; the rising cost of property and cost of living generally means those in their 30s and 40s can be left feeling financially squeezed before they can even consider paying into a pension or other investments.
So what should you do if you’ve neglected long-term planning? Our first piece of advice is not to bury your head in the sand! Starting a retirement saving plan at even a late stage is better than doing nothing altogether. Here are some other thoughts…
What’s your agenda?
The starting point for working out what you will need in retirement and what you therefore need to save to get there, you need to set out a plan for where you want to get to. The majority of us will want to have a comfortable retirement; perhaps going on holiday a few times a year, being in a position to pay off the mortgage and having money left over to enjoy hobbies or treat family members.
You also need to think about how long you want to work for. Obviously the earlier you plan to retire, the more you will need to put away over the coming years, unless you’re lucky enough to have a property portfolio or other means of generating a lump sum as you reach retirement.
There are lots of tools available online that provide estimations of sums required for retirement and how much you need to save to get you there. Information is power – at least if you have the knowledge you can begin to formulate a plan.
Start saving early
As discussed above, planning for retirement is something the majority of us neglect to take seriously until relatively late on in life. The so-called ‘millennial’ generation appear to have an even more lackadaisical approach to the long-term with many finding the prospect of being able to ever get on the housing ladder an impossibility simply giving up; focusing instead on living for the now.
However, as financial planners, this obviously isn’t an approach we advocate. As with most investments that are market linked, the longer pension investments are held, the more likely you are to see growth. Clearly, the greater the amount you manage to save during your working life, the greater your number of options will be when you reach retirement.
Don’t be put off by thinking you have to save thousands upon thousands to make a difference; even relatively modest amounts add up and anything you can put aside is better than nothing.
If you have worked at a few companies over the years, you may have built up a number of different pension funds. You may even have some that you’ve forgotten about! The best way to work out where to go next is to get a complete picture of your current situation and assess the way forward from there.
Once you have done this and put your new pension plan in place, don’t be tempted to sit on your laurels and hope for the best! It’s important to regularly review your pension savings and ensure you are on track. After all, your circumstances might change over the years. If you work with a financial adviser they can do this alongside you/on your behalf.
As well as paving the way for a better future, don’t forget that paying into a pension can bring other benefits – such as reducing corporation tax if you own your own company or maximising the availability of tax relief on income if you are employed/wish to make pension contributions personally.
For more advice and information on planning for retirement, please get in touch with us.