Ten ways to be richer in retirement
Make the most of your workplace pension scheme
It makes sense for most employees to join their company pension scheme. These schemes are usually good value and all employers have to pay into their eligible employees’ pensions through auto-enrolment.
You should find out how much your employer will pay into your pension and if they will increase this amount if you pay more yourself. If they will, this should be a very strong incentive for you to invest more.
Start saving as soon as possible
Although it may seem like a long way off, the sooner you start saving the easier it will be to give yourself a more comfortable lifestyle in retirement. Even if you cannot afford to save much initially it is better to do something than nothing at all.
The money you invest first will be invested for the longest and so has the best chance to grow. For example, if you invest £100 and it grows at 6% each year, after 10 years it is worth £179, after 20 years it is worth £321, after 30 years it is £574 and after 40 years it has grown to £1,029.
Increase your pension contribution when you get a pay rise
While you might only be able to invest a smaller amount initially you need to actively increase this as you get older, otherwise the effects of inflation mean that in real terms you’ll be investing less and less over time.
Look to pay in more as your salary goes up and also as you get older and you might have lower living expenses, for example when children leave home or mortgages are paid off.
Take more investment risk when you are younger
When you are younger and have a long period until your retirement date you can afford to take more risk with your investments especially if you’re investing monthly amounts, which most people will be.
Investing in shares is likely to give you the best long-term returns, although as your pension fund gets bigger and as you get closer to retirement you should hold more money in other assets such as cash, fixed interest and property, as capital protection will become as important as capital growth.
Have a pension and ISA
For most people the best approach for long-term savings is a combination of pensions and ISAs. Pensions provide initial tax relief which give your savings an immediate uplift, whereas ISAs can still be tax efficient and you are able to access your money whenever you like.
Keep an eye on under performing funds and high fees
It is important that you review your pensions, ISAs and other assets you’ll be relying upon in retirement on a regular basis. You should get a statement from your provider either annually or every six months, which will give you an up-to-date valuation, it is also possible to check the performance of many plans online.
Make sure you know how your investments are performing and if they are underperforming understand why and if it is likely to change.
If you don’t have expert investment knowledge, then stick with diversified investment funds such as multi-asset funds.
Also make sure you aren’t paying too much in charges. You need to understand how much you are paying your product providers and how much you are paying on any underlying investment funds.
Tracker funds are low cost investment options which can provide broad exposure to stock markets.
Understand your entitlement to the State Pension
Find out what State Pension you could be entitled to and when you are likely to receive it. If you’re not going to receive the full State Pension then see if there is anything you can do to boost this, such as making extra contributions.
You can request a State Pension statement from www.gov.uk/check-state-pension or by calling 0800 731 7898.
How will you take an income from your pension?
As you get older, you need to give some thought to how you’re going to generate an income in retirement. Pension freedom rules mean that many people won’t simply buy an annuity with their pension pot.
If you’re planning to remain invested while taking an income from your pension this will affect your investment strategy.
You could, for example, retire at age 65 but then live for another 30 years or more. This means that if you take too much investment risk or make high levels of withdrawals you could run out of money, whereas if you take too little risk the value of your pension is likely to be reduced by the effects of inflation.
There is lots of noise about the possible implications of Brexit as we move into 2019. However, this shouldn’t be used as an excuse to delay your retirement planning.
Nobody knows how Brexit will play out, although that is just about the same with everything else in life.
Historically, times of uncertainty have often proven to be good times to invest, when prices are depressed and people are sitting on the sidelines.
Take independent financial advice
Many people should take independent financial advice. Retirement planning can be complex, and getting it wrong could have a huge impact on your standard of living, so it’s important to make sure you’re on track to achieve your retirement goals.
It is particularly important to take independent financial advice when you are taking pension benefits, if you remain invested while taking an income or if you have a larger fund which you are relying on.