It can be tempting to put retirement planning on hold. However, putting your money to work at a younger age could dramatically increase your retirement pot, and ensure comfortable living later in life. It is essential to have a plan in place, as it is not something that can be built up over night.
- Know your retirement needs
A useful estimate to live comfortably, is to aim for 70% of your pre-retirement salary as an annual income. Although this is a great starting point, it is possible to more accurately predict retirement expenses. Begin by closely looking at your current expenses in various categories, and then estimate how they will change. For example, you will not have to factor in the cost of commuting to work, and your mortgage might be paid off
- Start Saving
Due to compounding, it is essential to start saving early. Instead of having to remember to save each month, automate the process so that saving is the default option. A convenient retirement savings calculator that accounts for inflation, interest rates and income growth, can be found at http://money.cnn.com/calculator/retirement/retirement-need/
- Manage Investment Risk
If retirement is a long time away, it is reasonable to use a higher risk investment strategy. Due to the ability to hold the investment long-term, the opportunity for an increased return can be beneficial. This strategy should be changed the closer you get to retirement, moving to a more balanced/cautious portfolio. If you are already close to retirement, avoid ramping up your portfolio risk or assuming your investments will produce an overly optimistic rate of return.
- Stay away from your retirement savings
To avoid severe fines and possible tax penalties, stay away from accessing your retirement savings early. This is usually only penalty free when due to severe ill-health.
- Top Up National Insurance Contributions (if applicable)
If you have outstanding contributions, it could be worth catching up. This may mean that you qualify for pension benefits, with the current basic state pension capped at £122.30 per week, and the full new state pension at £159.55 per week. These can be very useful on top of other savings that you may have.
- Rein in spending
It may sound simplistic, but most people rarely spend the time to monitor and cut costs. The extra money accumulated each month could be saved or invested, benefitting from the effects of compounding.
- Delay retirement
Although this may be undesirable, it is sometimes one of the most sure-fire ways to guarantee that you will have sufficient funds for retirement. You could also consider taking up a part-time job. This can provide plenty of social benefits, as well as aiding your retirement finances.
- Take Advice
There is no ‘one size fits all’ financial plan, as individual circumstances and retirement goals can differ dramatically. Speak to a qualified advisor to come across innovative ideas and to gain access to world leading investment platforms.