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Saving enough for a happy and secure retirement is becoming increasingly difficult and indeed could become an unattainable luxury for some. Retirement infrastructure in many countries is at breaking point which leaves it in the hands of individuals to save enough to support themselves after they finsin retirement. And yet huge numbers of people are not saving enough, with millions having no pension pot at all.
A recent study in the UK by Royal London worked out that today’s 35 year olds retiring in 2050 will need a pension pot of £660,000 to have the equivalent of the average monthly expenditure of today’s pensioners (£1,183). However, average savings are at £14,000, highlighting a frightening gap.
It might seem like an uphill battle to save enough for retirement but it is something all of us need to tackle. Here’s how to avoid the biggest mistakes and get the most out of your pension savings.
Compound interest is a saver’s best friend and the longer money is saved for, the bigger the effect it will have. That is why while retirement saving might not be the biggest priority for bright, young things in their twenties with a life of employment ahead of them, it is crucial to start early. Of course it isn’t easy to do with student loans to pay off, a rent or mortgage and endless bills but putting even a small amount aside is better than saving nothing.
If your employer runs a pension scheme – join it. Not only are their contributions free money, they are also a very tax efficient way of saving so a win-win for you. Maxing out your company pension is an absolute no brainer.
If and when you are lucky enough to get a salary increase, make sure you increase your retirement fund contributions accordingly.
Saving is hard and involves sacrifice, which is why you need every dollar you save to be working as hard as possible for you to create a pension pot which will make your golden years just that. Diversification is key so you should aim for a portfolio which includes different assets including shares, property, commodities and cash. How you balance these will depend on your attitude to risk and how close to retirement you are. If you are in your twenties you can afford to take more risk than someone looking to retire in the next decade.
When it comes to something as expensive and important as retirement, you’d be foolish to try and go it alone in working out a financial plan. A professional can help you to define a very clear financial strategy to get you the income you want in retirement and clarify and work out how much you need to be saving to make it happen. Choose wisely though as there are many unregulated operators working in the industry.
Of course we all want to give our children the best start in life and many of us see education as the key to achieving that. But a good education often comes at a price. If you can afford to save for both your retirement and your child’s university fees then that’s all well and good, and something that we would always advise, but if you have to decide between the two you should choose the former. Money for an education can always be borrowed but no bank will lend you money to retire. And being self-sufficient in retirement spares your children the worry and burden of having to support elderly parents.
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