What you can do if you're anxious about your pension plans in your 20s, 30s, 40s, 50s or 60s.
loveMONEY readers aren’t feeling too optimistic about the arrangements for their retirement according to a recent poll.
Just 10% felt very confident about their pension plans, while 12% described themselves as confident and 24% reckoned they’d be ok.
But a whopping 55% revealed they were worried or terrified about their current pension arrangements.
If you are one of the people that falls into the anxious camp, there’s no need to panic or live in fear. Here’s what you should be doing about pension savings and planning for retirement, whether you are in your 20s, 30s, 40s, 50s or 60s.
What to do if you’re in your 20s
If you’re in your 20s, now is the perfect time to start saving into a pension.
That’s because even if you save just a small amount each month or deposit a lump sum and leave it alone, the effects of compound interest will help what you put away grow into a substantial pot by the time you are ready to retire.
Your workplace pension is a good place to start saving. By law all companies have to offer one to workers aged from 22 (but under State Pension age) that earn more than £10,000 by 2018. For more read Workplace pensions: what does it mean for you.
However, it’s reasonable at this age to have other financial priorities like paying back student debts, covering living costs and saving for things like buying a house rather than locking money into a pension you won’t see for decades.
Rather than starting a pension straight away you could start putting money away in a tax-free ISA as this will offer more flexibility if you want access to your money. However, with the new personal savings allowance coming in from April, all savings accounts will become much more attractive. That's because from April the first £1,000 of savings income will be made exempt from tax (dropping to £500 for higher rate taxpayers). So whether you put your money in an ISA or a normal savings account, most of us will enjoy tax free returns on our savings.
What to do if you’re in your 30s
Your 30s are generally quite a busy decade for your finances. You may be getting married, want to start a family or be ready to buy your first house. And at the same time you might be juggling credit card debt and overdrafts you want to pay off.
But if you are in a position to save anything for your pension you should get going. Your first port of call should be to join your workplace pension scheme. As mentioned above all companies will have to have one by 2018 if they don’t already.
Joining this will effectively give you a pay rise as your employer will make contributions on your behalf and you will get tax-relief from the Government on anything you put in. If you do invest, don’t just settle for the default option; try to take a long term view to tailor it to your own objectives.
Investment experts recommend taking more risk in your pension investments, like investing in shares, early on. That way, if things do get a little turbulent, you have plenty of time to ride out the storm.
You can set up your own personal or stakeholder pension if you are self-employed, aren’t working or to save money on top of a workplace pension.
What do if you’re in your 40s
If you’re in your 40s and still haven’t started saving for retirement, it’s not too late.
However, you should get more focused as this is quite a crucial time for your retirement planning. The good news is your earnings are probably going to be reaching their peak this decade and you should have fewer debts and things to save for. As a result you should be in a good position to start saving some serious money.
You still have many years of work remaining (sorry) so compound interest can still help you. But at this point it’s important to get a broad idea of how much you need to save in order to get the retirement income you want, so you can work towards it.
Read How to work out how much you need to save for retirement for a detailed breakdown on how to do this.
This should leave you with a target saving amount to aim for. You can use a compound interest calculator in order to figure out how much you need to save before you retire and what sort of return you will need in order to achieve that target.
For example, if you found you needed a £100,000 retirement pot, had no personal pensions or savings, have 25 years before you want retire, and achieved average returns of 2.5% you would need to save £241 a month.
In order to hit that target, cut back on luxuries, squirrel any extra money away and make sure you are enrolled in a workplace pension, as you will benefit from boosts from employer contributions as well as tax relief from the Government.
What to do if you’re in your 50s
If you’re in your 50s and haven’t got a retirement plan, there’s still time to get organised.
Read How to work out how much you need to save for retirement to drill down what your target is.
Then focus on maximising the contributions you can make into a workplace pension or private pension and monitor closely how these are being invested.
Your money shouldn’t really be in anything too risky at this stage as the value could dip by the time you come to claim it.
It’s also a good idea to ensure that you will receive the maximum State Pension. There will be a new State Pension for those that reach State Pension age after 6th April 2016 and you will need 35 qualifying years National Insurance contributions or credits to get the full amount and at least 10 years to get any at all. You can top up your contributions to get full entitlement.
If you are really concerned about how you can achieve the income target you want in retirement, you may want to seek financial advice at this stage to make sure you are doing everything you can. Read Financial planning and financial advice explained for more.
What to do if you’re in your 60s
If you’re in your 60s you’re probably looking to stop working so you will need to make important decisions about how you are going to generate an income in retirement.
Check that you will receive the full State Pension and try to track down any pension savings with previous employers that you may have lost track of. You can use the pension tracing service to see if you have any.
If you have managed to build any pension savings, you should move them to lower risk investments. Take stock of what you have got and how you plan to make use of them.
For example, do you want to buy an annuity? This is an insurance product offered by pension providers that allows you to exchange your pension savings for an income for the rest of your life. Alternatively you could keep the bulk of the cash invested, taking money out as and when you need it. Be warned, if the stock market takes a hit as it has this year, the money at your disposal could quickly disappear.
If you haven’t started saving for a pension or just don’t have enough, you may have to consider working for longer to build up a decent nest egg to live off.
Whatever your position, seeking financial advice at this stage can ensure you are doing everything you can to secure a decent income in retirement. Read Financial planning and financial advice explained for more.
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