Saving for retirement may seem complicated.
Some would even have you believe you need a PhD - just to get started.
But in truth, pensions are actually quite straightforward. Especially when you break it down into three stages:
- Your money goes in
- Your money is invested in the stock market so it can grow
- You take your money out when you are older (the earliest age
you can do this is 55 – rising to 57 in 2028).
Each stage is important, but today I’ll focus on stage 1 – your money going in. Or in other words, your monthly pension contributions.
The great thing about contributing to a pension is you don’t pay tax on your own contributions. Even better – your employer contributes too. This gives your savings a real boost.
The downside about pensions is your money is locked away until at least age 55. However, this means you’re not tempted to spend it before you reach (or at least get near to) retirement.
How much should you save?
This depends on how much you have built up already, and when you want to retire.
Visit our Pension Calculator online
As a golden rule, if you can afford it, consider saving more.
And if you’re going to save more, it’s important to do it as soon as possible. The sooner you contribute, the longer your money has to grow. Although it’s important to mention, like any investment, the value can fall as well as rise so you could get back less than you invest.
Do you know how much your employer will contribute to your pension?
Perhaps they’ll pay in more when you pay in more. If so, make the most of this valuable benefit. Don’t just assume the minimum contribution levels will be enough.
We’re all different – but as a rule of thumb, saving around 15% of your salary every year of your working life is a good target.
This might sound startling, but many people start by paying less and then increase their contributions gradually.
Not only is this easier on your pocket, it can lead to a dramatic difference in your pension pot over time.
Not paying tax on your contributions – and help from your employer – means that even a 1% increase in contributions could cost you far less than you might think. Of course, tax rules can change and the exact benefits will depend on your circumstances.
Our online Pension Calculator lets you enter the pension savings you already have alongside how much you and your employer are contributing. Then you can use it to work out how much more you may need to put in to achieve your target. Whilst the figures it provides aren’t guaranteed, they can be a useful guide.
How much will you need in retirement?
To live comfortably when you stop working, most people need about two thirds (66%) of their final salary as income.
However, consider the fact you will no longer have commuting costs, any children you have had may have left home and the mortgage could be paid off. In other words, your money should go further.
If you’re close to retirement, you may have a much better idea of what you’re likely to spend each month when the time comes to leave work.
Don’t delay, save more today
The best time to start saving more for your retirement is today.
In a nutshell, the more you save now, the more you should have later.
Free up some extra savings
Pennies are tight in homes across the UK. The first step in trying to free up some extra money is to look at what you’re spending.
You might be surprised at where you can make savings.
Visit our Budget Calculator online
Even small changes can make a big difference.
For example, you may be able to trim costs by giving up a £2 cup of coffee on the morning commute. This could allow you to save an extra £500 a year into your pension instead.
Why not visit our online ‘Budget Calculator’? Enter your monthly outgoings and it could help you understand more your spending habits – and perhaps where you can make savings.
Speak to an expert
If you’d like to speak to us about how much you’re currently contributing, or you’d like to know how to increase your contributions, just call 0117 314 1795 or email us – we’re always happy to help. Our standard service, like this article, is not personal advice but we can put you in touch with an adviser if requested.