Saving for retirement – simple, right?
- Credit: Coleridge Wealth Management
On the face of it, saving and investing for retirement is a pretty simple affair – the aim is to put as much of your earnings aside as you can afford, so that you have enough to live on after you stop working.
But while the idea is simple, the reality can be quite different. The nature of saving for retirement has evolved, the rules have changed, and the guarantees that pension savers could once take for granted are now increasingly rare.
The good news is, for those willing to engage with their evolving pension requirements, there is more flexibility and control available than ever before. But that comes with greater complexity too, ensuring it’s a journey best travelled with an expert to guide you.
When retirement is decades away, it isn’t necessarily a priority. However, the sooner you start your pension journey, the smoother it will likely be.
Thanks to behavioural psychology, we know people prefer a small gain now, rather than a bigger one later. It makes sense – after all, how can we be sure of getting the prize that we’re deferring for the distant future?
That’s why it’s worth trying to visualise ourselves at an older age, and imagine how much difference a decent savings pot might make to that person. Being able to imagine the long-term benefits makes it easier to put long-term savings and investing goals in place.
It helps to have an idea of how much it might cost to enjoy a comfortable retirement. It is useful, as well, to understand how to save for the long term and the types of vehicles that are best suited to the task.
The obvious place to start is pensions, not least due to their tax efficiency (such as the government topping up your contributions in the form of tax relief). Many people will open their first pension with their employer, and likely open further pensions with other employers during their career.
Keeping track of those pension pots and knowing what to do with them can be tricky, so it’s good to understand the different types of pension you might have.
If you’re lucky, someone may have started a pension for you well before you entered the workplace. It may seem strange to start a pension for a child when their life has only just begun, but you can be sure they’ll be grateful for it one day.
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While the task of saving for retirement seems straightforward enough on paper, there are often other factors to consider.
For example, members of so-called Generation X – those born between 1965 and 1980, referred to as the ‘sandwich generation’ – are often caught between supporting their parents and their grown-up children, while trying to manage their own finances.
More broadly, when it comes to saving for retirement, the self-employed face challenges such as an unpredictable income and the absence of workplace-pension provision.
There are barriers to overcome for women, too, with a gender pay gap that remains wide at 15.5 per cent1 and women being more likely to work part time, take breaks from paid work in order to raise children and to adopt flexible working patterns.
That dynamic also means women are now earning for longer, extending their working lives up to, and past, their state-pension age. For those with relatively little pension provision by the time they reach mid-career, or even as they approach retirement, there’s a lot of catching up to do – but it can be done.
Making it last
It used to be that reaching retirement would be the end of the pension saving and investing journey. These days, however, it merely signals a new phase, as your plans are shaped around new priorities.
With various pension choices to make at retirement, it’s vital to have a good idea of what retirement means to you in order to put a plan together.
It can be an emotive subject – it might be both the start of something new and the source of great worry and uncertainty – and investment decisions made at this point can weigh heavily. Understanding how your emotions influence those decisions is important.
There will be practical questions to ask, too, such as whether to access your pension when you retire or keep it invested during retirement.
Taking the team approach
The retirement income journey is one you can travel alone, but you’re more likely to get where you want to go if you have an expert by your side. A financial adviser can help you put a plan together and help to ensure you have sufficient income in retirement.
One area where advice can be especially useful is tax. The tax rules around pensions have a habit of changing a lot, while there are allowances you need to know about in order to take full advantage.
For example, the carry-forward feature of the annual allowance can be very helpful, especially if you’re able to plan ahead and not simply wait until the end of the tax year.
Similarly, with the lifetime allowance now frozen until 2026, there may be steps you need to take to avoid breaching it, even if you don’t think it’s likely.
Perhaps the easiest way to keep on top of the various pension allowances and ensure you’re making the best of them is to undertake a review of your tax situation every year, ideally with the help of an adviser.
Whether you’re just starting to save for retirement, want to make sure your plans stay on track, or you’re managing your retirement income, we can help you make your retirement dream a reality.
To receive a complimentary guide covering retirement planning contact Coleridge Wealth Management on 01275 430 024 or email email@example.com
The value of an investment with St James's Place will be directly linked to the performance of the funds selected and may fall, as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
1 Gender pay gap in the UK: 2020, Office for National Statistics, November 2020