Retirement should be something to look forward to, but if you already struggle with managing your money or if you’re currently out of work, you might be concerned about how your retirement fund is doing. There’s nothing wrong with being aware of your finances, both present and future, as retirement is something most of us aim to experience. But in the meantime, how can you ensure you save enough money to live comfortably during your pension years?
Currently, the state pension age for both men and women is 66, although it is scheduled to increase to 67 between 2026 and 2028. The state pension age is the age you must be in order to receive your state pension and the starting age will likely keep increasing as people live longer, and the aging population increases.
While the state pension age is 66, it doesn’t mean you have to retire at that age. In certain professions you can retire and access your pension fund from much earlier. For example, the minimum pension age in the Police is 55. Plus, people who earn very high incomes, and can afford to, might choose to retire early. Others may not be so fortunate or may really enjoy working and therefore choose to keep working past the state pension age.
Suddenly giving up work can affect people quite significantly, especially the older generation, so it’s a good idea to take up some hobbies or volunteer work when you retire, or join some new local societies, so that you can stay active and maintain your social interactions.
There are a few different ways to save for retirement, but in any case, you’ll at least receive the state pension if you are eligible.
The full new State Pension payment is currently £175.20 per week and your eligibility for the state pension is calculated using your National Insurance record.
Workplace pensions are arranged by your employer and your contributions will come straight out of your paycheque each month or week once you earn over a certain threshold. The contributions are compulsory once you reach the age of 22, and earn over £10,000 per year, however you can opt in to pay towards your pension at any time if you don’t meet the above criteria.
You must pay a minimum of 8% of your qualifying earnings into your workplace pension, although this is split between you and your employer. Typically 3% is paid by your employer and you will pay the remaining 5%. This means if you earn £25,000 a year, your monthly contribution will be around £78, and your employer will contribute approximately £47.
If you are eligible for a state pension and you pay into a workplace pension, you will receive both once you retire and are of state pension age.
As well as state and workplace pensions, you might also choose to set up a personal pension. You pay a lump sum to a personal pension provider, or you’ll make regular payments, and usually the pension provider will invest your money to provide you with an income once you retire. As with almost anything these days, you must be wary of potential pension scams. You should check how to avoid pension scams before taking up any personal pension opportunities and check the FCA register to make sure the business is regulated and authorised by the Financial Conduct Authority.
Of course, you can also save and invest privately. With a registered UK bank or building society, your money is protected by the Financial Services Compensation Scheme up to £85,000 so you can always just save money into a regular savings account rather than – or as well as – using a personal pension provider. However, there are specialised accounts like Lifetime ISAs which might offer better interest rates than a regular savings account.
Additionally, you might choose to make your own investments. Often, people will downsize their property when they retire, either to save on rent payments, or to live off the equity released by the house sale. For example, if you’re mortgage-free (this means you no longer make any mortgage repayments because you’ve repaid all the money you owe the bank), and your house is worth £300,000, then if you downsize to a property worth £200,000, you’ll have a lump sum of £100,000 to use during your retirement (excluding house sale and moving costs).
Retirement, like everyday life, will require rigid financial management because while your expenditure will remain relatively similar, your income will likely change. If you earn overtime or receive commission, you might find it especially difficult to adjust as you won’t be able to earn extra to cover additional expenses throughout the month.
Even if you’ve just joined the working field, it’s important to save towards your pension and put the foundations in place to enable a comfortable retirement. There are loads of resources available on the government website and the Money Advise Service to help you navigate the complications of pensions – there are even pension calculators so you can see how the amount you are saving now will add up when you retire.
There’s no need to get stressed about saving for retirement, but preparation is key and planning ahead when it comes to your finances will help mitigate the risk of potential financial shortfall.
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