One of the things we do as Independent Financial Advisers is encourage people to save for their retirement, and sometimes the sheer scale of the cash pile required can be daunting. As a very rough measure, you need a fund of 20 times the annual income you want to be able to spend. For an extra £10,000 per year, over and above State Pension, you would need a fund of around £200,000.
While the amounts needed can seem large; remember you have all of your working life to put it together. It does not even have to be your money; it could be your employers’ pension contribution to your scheme, or the government top-up to your Lifetime ISA. If you start early enough, the majority of it could be the return on your investments as compound interest does its thing nicely for you over time and really is your friend.
Like eating an elephant, the key is small portions on a regular basis!
One of the pension providers, NEST has even provided details of small lifestyle changes that could help add to your pension pot over time; their timescale being 38 years of small sacrifices, from 30 years of age to 68:
Cut out one takeaway coffee a week; £11,800
Switch mobile phone tariff; £16,100
Cut out one packet of cigarettes a week; £31,400
Cut out a takeaway a week; £50,900
Take a packed lunch to work; £63,700
If you managed to make all of these changes and stick to them religiously (which is unlikely) the amount saved would be a staggering £173,900 over that period - which could be saved and invested for your future. There are other things that you can do which when added together can make a significant difference. For the employed, consider:
Joining your workplace pension, and stay in it.
Pay in at least as much as required to get the most from any employer matched funding.
If you have more than 10 years to retirement and your attitude to investment risk is not zero, consider investing a proportion of your Pension in Equity funds, (stock market funds), to maximise your returns. Try and avoid the “default funds” as these will probably be ideal for no one.
Whenever you get a pay rise, make sure more money goes into your pension. If you have never had it, you won’t miss it!
Read your annual pension provider statements. By law they have to give you an estimate of likely pension income at retirement. Remember that this estimate is adjusted for notional inflation, so do not be discouraged if the rate of change is small.
If your pension does not appear to be going the way you would like, get formal advice. Sometimes investments can be poor or the scheme charging structure is working against you. There is more than one way to achieve your goals and you need to find the best one for you.
The self-employed also need pensions. Pensions represent the most tax efficient way of withdrawing value from your business and keeping it safe for your retirement. For the self-employed: -
Once you are paying tax regularly, you need a pension plan to shelter some value from the tax man.
Like any other pension, paying premiums little and often are usually the best.
Explore other pension structures with an independent financial adviser, as a SIPP or SSAS may offer you advantages over a conventional scheme.
If you need business premises, pension money in a SIPP or SSAS can be used to buy them.
If your business fails, the money you have saved in your pension should be safe from your creditors, (providing you have not taken liberties with the law).
How can I get professional advice on my Pensions and Retirement Planning?
We provide independent financial advice to help our clients, plan, measure and achieve their retirement goals.
Please contact us at firstname.lastname@example.org or call us on 01223 792 196 to arrange an initial appointment, at no cost to yourself, with one of our Independent Financial Advisers.
About Martin-Redman Partners
We are a team of experienced Independent Financial Advisers who can advise on your personal or business financial arrangements. We have been building trusted relationships with clients for many years by articulating clear and tailored recommendations in areas ranging from investments to retirement planning, to complex estate planning advice.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.