How do you plan to spend your retirement? Taking holidays and exploring the world? Spending time with family? Treating your grandchildren? Whatever your retirement dreams are, you’ll need money to afford them as well as to continue to pay your regular household expenses.
With that in mind, we’ve put together three simple tips designed to help you retire richer and enjoy financial freedom.
Start as soon as you can
The earlier you start saving for retirement the better.
No matter how small the amount is, investing early means your money will be working harder for longer. Once you start putting money into your pension pot, you’ll begin taking advantage of compound interest, meaning you aren’t just making money on your investment, you’re also making money on the growth of your investment.
A great way to look at the power of investing early is to compare how much you might need to invest from different ages to reach the same goal.
- A 30-year-old with a goal of £500,000 by age 65 would need to invest £440.10 each month assuming an annual return of 5%.
- A 40-year-old with a goal of £500,000 by age 65 would need to invest £839.61 each month using the same assumptions.
- A 50-year-old with a goal of £500,000 by age 65 would need to invest £1,870.63 each month using the same assumptions. That’s more than 4 times the amount that the 30-year old needs.
Don’t let saving be a choice
Make investing in your pension an automatic and essential part of your financial routine.
If you can adjust your mindset to view investing in your pension pot as an essential outgoing, like a mortgage payment or electricity bill, you’ll start moving towards your retirement goals a lot quicker.
If you haven’t already, why not organise a monthly direct debit to take a set amount from your account every month? Paying yourself automatically in this way can be a powerful way to reach your long-term goals. You can even increase the direct debit over time if more money becomes available or reduce it according to your budget.
Make the most of every opportunity
It’s important to take advantage of any help you can get when investing for retirement. The good news is there are numerous tax allowances that shrewd investors make the most of.
For example, the Pension Annual Allowance is the amount you can invest into your Pension and claim tax relief on. Each tax year you can typically claim tax relief on 100% your earnings up to £40,000. Over time, this government boost can seriously increase the value of your pension pot.
Another key tool available to you is an auto-enrolment pension scheme. With contributions from you and your employer, as well as government tax relief, they’re an effective way of maximising every penny you add to your pension pot. Make sure you’re enrolled and contributing the amount you need to reach your pension goal.