It is true that the idea of retirement at the age of 20 or 30 may seem like ages away, a task that can be put off until later in your career. However, experts suggest that one should start saving for retirement as soon as one starts earning. Retirement savings should not be treated as an option but more as a priority, at least if you desire a decent standard of living post retirement. Saving for retirement allows you to have a say in what your future would look like. Not many would want to be forced to keep working till they are 60 or rely solely on the government’s welfare system for sustenance.
The ‘Retirement Income Adequacy: Generation by Generation’ report by the Pensions and Lifetime Savings Association revealed that almost 50% of the UK’s 5.5 million workers are at the risk of not having adequate income during their old age.
Moving from ‘not saving’ to ‘saving’ can be quite an inertial push for people and many a time a daunting task. We will try to help you with this compiled list of ‘right things to start doing for saving enough for your retirement’.
According to Aegon’s 2017 UK Readiness Report, the size of an average UK pension pot is £49,988, with men saving £73,568 in pension and women saving £24,869. Due to the government’s pension auto-enrolment scheme, which was implemented in 2012, the size of the average pension pot has increased, as it has become mandatory for employers to enrol their employees in a pension scheme. However, it must be considered that the size of the pension pot doesn’t include leisure activities, such as holidays and vacations. So if you want to indulge in leisure activities, you should consider saving more by investing more than the minimum limit. It also helps to have age on your side, i.e. the earlier you start, the more beneficial it is and the more chances of you ending up with significant retirement savings. Consider you start saving £120 a month when you start working at 20 as opposed to starting at 30. Your retirement savings at 55 would have a difference of at least £14,400. Moreover, this is just your part of the savings. Don’t forget that your employer and the government chip in to match up your contribution. So pull up those socks, and start your retirement savings if you haven’t already. The UK government has set up a dedicated Pensions Advisory Service that you can contact for any clearing your doubts or for any pension savings-related question.
One of the most important tasks in planning your retirement is to put a number on it. You have to decide what is ‘enough’ for you and then accordingly set a range that you think will suffice your needs. While deciding your retirement numbers, it is extremely important to draw an estimate of your expenses, such as monthly bills and mortgage dues, and save accordingly. Requirements could mean different things for different people. For some, it could mean managing basic amenities, while for others, it could mean maintaining an extravagant lifestyle. Therefore, it is extremely necessary to clearly define and state your requirements, as your pension pot size will vary according to them. Using the ‘need vs. want’ model could come really handy in assessing your requirements.
Reviewing and closely monitoring your state pension is as necessary as maintaining one. The state-sponsored pension will be of great assistance in your retirement days, irrespective of how much you’ve managed saving via other means. However, you should not simply assume that you’re entitled to the National Insurance credits without checking your qualification. Moreover, there might be several unforeseen reasons, such as illness, family issues, or unemployment, which may change your work conditions. Under all such scenarios, it becomes very crucial to keep a tab on your National Insurance contribution, as your entitlement to the funds does not depend on how much you contribute rather on how long you’ve been contributing. Currently, the government has mandated a minimum of 35 years to qualify for the full state pension. The government has also made provisions for unemployment under the National Insurance scheme. Some people automatically receive the National Insurance credits, while others have to apply for the credits personally. Therefore, closely monitoring your National Insurance fund is a necessity.
From 2012, the government of the UK made it mandatory for employers to offer pension benefits to all employees. If employers don’t have a pension scheme of their own, they will have to avail the services of third-party providers to provide pension benefits to their employees. If you qualify for employer-funded pension, you’ll automatically be enrolled for your workplace pension scheme. Post enrolment, employees will have a month to opt out from the scheme, if they want to. During this period, do not do anything, and remain enrolled. Your work pension scheme will have both yours and your employer’s contribution to the pension fund, and this contribution is also exempt from taxes.
It is not a very wise decision to solely rely on the state pension for your retirement. For 2018–2019, the weekly full state pension is £164.35, which will roughly come up to £7,888 annually, way less than the average annual amount required to maintain a decent lifestyle. Some employees may have to shell out more for insurance contribution, and with the life expectancy increasing, employees will have to work for more years before they can access the state pension fund.
Saving more will always be a top money-saving method, which will lead to more retirement savings for your future. If you have the option of investing more in pension, you should take it. As your income increases with your work tenure, try setting aside more for your pension. If there are other ways to source in more income, try taking benefits. For e.g.: you could get an extra part-time job apart from your regular job, or you could seek a few hours of overtime with your existing company. You could also try cutting back on unnecessary or impulsive spending. Creating a budget on the onset of every month and rigorously sticking to the budget will help identify areas where you can cut expenses. It is also a good idea to consider unforeseen circumstances, such as illness and unemployment, which may affect your earning capacity. Therefore, it is always a good move to have more savings in place.
Read here – How to calculate your Self-Employment Income Tax
As rightly said, “when you invest you are planning for a day when you won’t have to work”.
As already mentioned before, it is not a really good idea to leave your pension pot unchecked. Once your pension account has been set up, make sure you review its performance from time to time to monitor its growth. Irrespective of the pension plan that you are enrolled in, you will receive an annual benefit statement from your pension provider. Use this statement as the measuring stick to review how well your pension fund is growing. On the basis of this statement, you may decide to take additional measures such as altering the investment options, investing more in pension, or even setting up a second pension fund. Do not make the mistake of checking your pension fund only after you retire, it might be too late by then.
It is not surprising to feel completely baffled while managing your retirement savings. It can be a quite daunting and complex task, and if you’re confused about any aspect, don’t hesitate to ask for assistance. There are many people that you could speak to for clearing your doubts, including friends and family members who already have an existing pension fund. Furthermore, you could seek the assistance of your pension provider or a financial consultant. To assist users, the UK government has established the Pension Advisory Service where you can contact for any pension-related queries.
Also Read – Top 10 Questions to Ask your Accountant
To ‘push’ you to start saving, we give you a list of places which you should plan for your retirement. These places have less crime, sunny beaches, cheap houses and good health facilities.