Whether you’ve dreamed of early retirement or are just looking forward to relaxing after a long career of hard work, retirement is something most people look forward to.
But despite this, many are unprepared for their retirement years after failing to save sufficient pension. To make the most of your retirement, it’s crucial to have a solid savings plan in place.
People tend to make these 5 common pension planning mistakes when dealing with their retirement:
A common misconception is that pension savings can be put on hold. This is one of the retirement mistakes you can make. While it’s never too late to start your savings fund, putting it off can leave you with less in your pension pot come retirement. The earlier you begin putting money aside, the more you’ll have to retire on.
And if that’s not enough
Starting your savings late will also see you having to increase your contributions to make up for the shortfall.
The older someone is when they start saving, the larger their contributions will need to be. To save enough for an annual pension of £23,0001 you’ll need to save £293 a month in your 20s, £433 in your 30s, and £724 in your 40s. If you put off your pension saving until your 50s, you’ll need to set aside £1,445 a month.
Relying Solely On Your State Pension
The State Pension will offer you some funds for your retirement, but it’s not sufficient to live off comfortably when you stop working. Despite the recent increase in the State Pension, you can only access these funds after the age of 66. The state pension age is also set to increase 67 in 2028.
Underestimating The Amount You’ll Need For Your Retirement
You may not have considered how much you’ll money you’ll need once you retire. But underestimating the income, you’ll need once you stop working is one of the worst retirement mistakes you can make when planning your retirement. This could leave you with a retirement shortfall, and in turn, could force you back into employment or sell assets such as your house.
You must consider the amount of money needed to cover your necessary expenses during retirement, as well as any luxuries you may be planning – such as holidays or a new car.
What you need to be comfortable will depend on the stand of living you’re used to, and you’ll have to consider how much of your current salary you’ll need to maintain it.
Relying On Property To Fund Your Retirement
Relying only on property investments to see you through your retirement can be financially risky, as you’re dependent on the ever-changing property market. This means your savings could go up and down, or even dwindle in the event of a market crash.
Relying on the equity of your house also brings some red flags. If you’re downsizing, you’ll need to factor in the cost of moving and finding a new home.
Forgetting about pensions at previous employers
You must have an eye on your pensions, including which providers are they with and how are they performing. Don’t be tempted to forget about them; in the long run, leaving them unattended could end up losing you money.
Did You Know?
Your pension funds could be performing poorly, in which case you’ll amass less wealth than planned. And if your pension is subject to high fees, it could be dwindling rather than growing once you’ve stopped paying into it.
5 Ways to Boost Your Retirement Funds
Even if you’ve made some mistakes in planning for your retirement, there is still time for you to get your pension savings back on track. Try these 5 tips to get your pension fund growing again.
Save, Even If It’s Only A Small Amount
You can save for a pension on any wage, even if you’re not earning much. If your contribution is taken directly from your salary, you probably won’t even notice the monthly deduction.
You only need to pay in a minimum of 3% to be enrolled in a workplace pension scheme, and this will ensure you don’t miss out on the 2% employer contributions. You also stand to benefit from government tax relief, so it’s worth your while to pay whatever you can afford.
In simple terms
Even if you don’t have much to contribute to your pension, small amounts can make a big difference over time.
Make Sure You’re Eligible for A Full State Pension
If you pay National Insurance contributions for 35 years, you’ll be entitled to a State Pension of £8,767 annually. These monthly payments are deducted from your wages automatically, as well as income tax, and will only be paid while you’re employed.
If you haven’t been employed for the full 35 years, you do have some options. You could claim for National Insurance credits if you spent time caring for children or elderly relatives, or you could top up your contributions. Your record should be available online through the State Pension Service2.
Calculate What You’ll Need
Knowing whether or not your pension savings are on track can be difficult, especially if there’s some time to go until you’re due to stop working. The amount you need to live comfortably during your retirement is unlikely to change, and you should try to save at least 70% of your current income. This should cover your living expense and a few luxuries.
But there’s more
If you need help projecting where your funds will be in a few years, try using a pension calculator to see what progress you’ve made. This can help you map out how much to save over the next few years to have the amount you’d like after retirement.
Grow Your Pension with Diversified Investments
While property is often a good investment, to grow your pension fund, it should be invested in several places. A good pension plan will invest your assets across a range of funds in a diverse portfolio. These usually include shares, bonds and cash in addition to property. This diversified investment model reduces risk and protects your interests, ensuring you won’t’ be left with a shortfall after retirement.
Locate Any Old Pension Plans
Shift through your old paperwork to start tracking down pensions from your previous places of employment, or contact the Pension Tracing Service offered by the government. Once you’ve located all your old plans, get advice on whether or not it’s worth your while consolidating your plans into one.
Got Questions? Check These First
When Should I Start for My Retirement?
Start your retirement savings as soon as you can. The more years you have to accumulate savings, the funds you’ll have in your pension pot when you reach retirement age. If you start saving early, you’re less likely to have to fork out substantial monthly contributions towards your pension savings.
How Much Should I Save For My Retirement?
There is no one answer here, but you should aim to save as much as possible. Some suggest saving between 10% 15% of your annual income, but the most reliable way to plan for your retirement is to use a retirement calculator to figure out what you’ll need. You should try to save at least 70% of your current income to cover your day-to-day expenses.
What Are the Benefits of Combining Pensions?
Combing your pension plans can allow you to manage your funds better. You will be able to keep track of your money easily, and you may save if you move away from a pension scheme with high costs. You may also have a wider choice of investments if you consolidate your funds into one scheme.
How can I top up my National Insurance Contributions?
Check your National Insurance record is up to date through the online State Pension checker. You may find your record is short if you’ve been unemployed, taken time off due to illness, or taken a break to care for your family. You can buy voluntary National Insurance contributions or claim National Insurance credits to bring you up to date.
Planning for your retirement can seem daunting, but with a few simple tricks, you can avoid some common mistakes in retirement planning. Taking the time to plan your pensions savings properly can save you from a shortfall later in life and ensure you have the freedom to enjoy your golden years.