How will you save for retirement?

There are a few things you should keep in mind if you want to help your pension pot grow into an annual income that you can comfortably live on as an annual retirement income.

  1. Start early – the earlier in your working life that you start putting your pension savings away, the longer time period you have for your investment to grow.

  2. Clear your outstanding debt – while it is not always easy, it is always worth it. Paying off your current debt as soon as you are able to, meaning that you’ll free up more monthly funds for your pension contributions pot.

  3. Prioritise your pension savings – throughout your working life, there’ll always be a number of reasons to save, such as for a home, car or even a holiday, and ultimately only you can decide what your overall priority is – but the more you concentrate on your pension, the more you can help your future self by building up a pension income amount that will lead you into a comfortable retirement. 

  4. Set a goal – with a firm goal in mind, it will prove to be easier to motivate yourself to start saving by putting money aside for your future.

Saving for retirement: ISAs.

An alternative option for building up a good retirement pot for your future is to open an ISA, or even a series of ISAs over the years. ISAs offer an excellent way to save tax-free, and you can invest up to £20,000 in the current 2019/20 tax year. Keep an eye on the rules as they may change, and always discuss things with an accredited financial adviser before you begin.

There are several different types of ISA, and again one of the benefits of using a financial adviser is that all different types will be considered to see which is best for you.

You can choose to pay in to a cash ISA, which are generally very accessible and easy to open and run, but they are quite likely to offer a lower rate of fixed interest, if any. A very good alternative is a fixed rate ISA, where you may tie up your money for a predetermined period of time, and although these types of ISAs will generally be on a limited access basis, they will nearly always offer a slightly higher level of fixed interest. 

Or you could consider investing in a stocks and shares ISA, which will - as the name implies -  be invested in stock market traded funds – but be aware this is an investment, and the total value of your investment and the income earned from it can go up as well as down - you may get back less than you originally invested. It’s important to take professional advice before you begin.

Alternatively, you could think about the Lifetime ISA. A Lifetime ISA is a type of ISA that lets you build up a long term fund, generally used for long-term financial planning such as for buying your first home, or for retired planning to build up your pension pot. You can pay in up to £4,000 a year, and the government will contribute 25% of what you’ve paid into the account too. You should note that this £4,000 makes up part of your annual £20,000 ISA allowance and adjust your savings into any other ISA accordingly.

Lifetime ISAs do come with a fairly stringent set of usage rules. You won’t be able to take money out of the account until you reach 60 years old without paying a 25% charge – unless it’s for your first home. You also have to be over 18 and under 40 to open one of these savings accounts, and once you turn 50, you won’t be able to make any more payments in at all, but your savings will still earn interest for the duration of the ISA.

Saving for retirement: pensions.

Pensions are still the most obvious way to save for your retirement. There are multiple online pension calculators available to help you decide what you should be saving towards your retirement. Pensions are a popular form of saving for retirement because they offer tax relief on the money you pay in as well as on your financial returns. 

Workplace pensions.

There are two main types of pension – workplace and personal. A workplace pension is a pension arranged by your employer, and now it’s the law that all employees must be auto-enrolled across the UK. All employees aged between 22 and the state pension age, who currently earn more than £10,000 a year, must be offered a workplace pension.

Most workplace pensions are now defined contribution schemes, which means your employer chooses a pension provider, and that they contribute to your fund as well as you. Most companies contribute between 3% and 10% of your annual salary each year, so investigate and check what contribution your employer makes. Ideally, your total contributions should then top this up amount up to around 15% of your salary overall, which is the suggested UK average contribution.

When you become of age to take your pension, the amount paid out to you on a monthly basis depends on how much you’ve paid in over the years and also on how long you’ve been paying for. As well as this, other factors include the investment return from the provider’s investments, whilst also factoring in any fees the provider will have deducted along the way. 

Personal pensions.

If you’re one of the people in the country who can’t get a workplace pension – perhaps for example, if you’re self employed – you’ll have the option of starting a personal pension. Again, starting early and investing as much as possible is in your own best interest long-term, This means you’ll pay directly into a plan from a provider that suits you, and you’ll be making regular monthly payments, or perhaps an occasional lump sum payment too, for the provider to invest on your behalf.

One advantage of a personal pension over a workplace pension, is that the pension provider will usually offer a wider range of more intricate investment funds, thus giving you more overall flexibility than a typical workplace scheme. The downside is that you won’t be able to take advantage of the employer top-up contributions that come with current workplace pensions. Because of this disparity, it’s been suggested that there needs to be more done for self-employed individuals particularly to have access to better pension deals - although there have been no announcements on this yet, it is broadly expected that there will be a move to tackle this in the coming years.

In general, pension rules are pretty simple. Invest early, invest often, and save all that you can. Your future self will thank you for it.

Start planning your future. Speak to us today.

Contact Us

Seventy Financial Planning
The Apple Store, Haggs Farm,
Haggs Road, Follifoot, Harrogate,
HG3 1EQ

01423 611004

[email protected]

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