Getting the best for your Retirement Plans

Building a sum big enough to retire on comfortably can seem an overwhelming task at times, especially in the current global malaise. While responsibility for retirement very much lies with individuals these days, there are ways you can make your funds sweat for you. Getting into the savings habit for the long-term is one thing, here are some other steps you can adopt to help you build a decent sized fund.

Saving for retirement can feel daunting and many of us, understandably, prefer to avoid thinking about it. However, there are some very compelling reasons for overcoming that hurdle and seeing it as an opportunity. The responsibility for saving retirement has in recent years shifted increasingly to the individual. The days of guaranteed final salary (or Defined Benefit) schemes, with their guaranteed payouts, are long gone. Most of us are in Defined Contribution (DC) schemes, where the outcome depends on investment performance and how much we pay in. 

Saving for retirement is no longer something we can afford to ignore. The good news is by following a handful of simple rules, you can make that responsibility work in your favour. Here are five steps that will give your retirement savings a solid foundation.

Make it a habit

Thinking about the level of savings required for a comfortable retirement can be off-putting. At first, however, it’s the act of saving that really counts, rather than the amount you put away. Many people think they need to save a lot of money straight away, but it is ok to start off smaller. It is more important to be realistic and get into the habit, then you can build it up over time as and when you can.

The important point here is to put small amounts into a pension and/or a Cash or Stocks & Shares Individual Savings Account (ISA) and let the magic of compounding go to work. This is the snowball effect that happens when the money generated by savings (such as interest) goes back into the pot and then generates its own growth.

Make a Plan

As a minimum, have a series of objectives that can help motivate you to save by giving you a strategy, purpose and direction. Knowing why you are saving and what you want to use the money for can really help focus your mind. You might have objectives for different time frames. For example, the short term might be about having a rainy-day fund, the medium term, saving for a car or a home, and the longer term is about setting yourself up for when you have finished working and are looking to retire.

Diversify

Diversification means putting your retirement fund in different assets rather than saving it all in one place. This becomes especially important when you have money in pensions and investments linked to the stock market. The investment risks you are prepared to take should be appropriate to your plans or objectives, and to your own personal attitude to risk.

Make sure you use the various tax-efficient allowances available such as ISAs and pensions and diversify across products with different risk levels. Using both a pension and an ISA is in many ways a better approach than saving into just one or the other as it gives you instant diversification.

Think about you

There are two main rules here, depending on whether you are employed or self-employed. If you have an employer, find out what it will contribute to your pension. Most will match your own contributions or pay in a certain percentage of the amount you do. This means not paying into a workplace pension can effectively mean turning down more money from your employer.

If you are self-employed, one thing you can do and could make a big difference is using the ‘carry forward’ rules. This allows you to use any unused allowances from your previous three tax years to maximise your pension contributions in the current tax year. It also means if you do not use all your allowance this year, you can carry it forward and still benefit from it in future. The carry forward rule is available for all employed people too.

Self-employed earnings can be unpredictable, so the carry-forward rules can play a vital role particularly after the last couple of years. If you have had a good year, for example, you can carry forward from previous years to save more into your pension, if you can afford to.

Take advice

There are many excellent reasons for taking professional financial advice, including the role we can play in helping you get into good habits and keep them going. What will help keep you on track are those regular check-ins with your financial adviser. Life can take over and even important things can lose our attention, so a regular check-in/review with your adviser puts the focus back on your retirement planning.

The way advisers interact with clients has evolved, making it even easier to keep in touch. During the pandemic, we moved to video calls and whilst you cannot replace face-to-face advice, digital methods can help in keeping that regular contact going. Everyone has different priorities, circumstances and objectives, but we can map out a plan with you and help you keep it on track. We use a cash flow modelling tool which will help create a plan and keep it on track.

For more information, call your Prosperis adviser on 01423 223640 or email us below