For most of us, the days of relying upon the state to keep is in our retirement are long gone. Staying with one employer throughout our working career and building up cast iron benefits within a final salary pension scheme is also becoming a rarity and so we have to face the prospect of saving more of our money to give us an adequate income in retirement.
The following tips can help you to work out how much you need to achieve your desired lifestyle in retirement and answer the question “How much is enough?”
- Estimate roughly how much money you’ll need to live on in retirement. Don’t get too bogged down on how to calculate the amount at this stage. A ballpark figure is a good starting point, and you can use one of a number of good online retirement calculators to get an estimate.
- Calculate what will be available from sources other than your savings. For example, what is your expected State Pension at retirement age? (www.thepensionservice.gov.uk – form BR19). Do you or your spouse have a pension from a previous or current employer? If you have a personal pension, what is the expected value at your planned retirement age? Use a conservative rate of growth to avoid overestimating.
- Set goals for reaching the amount you’ll need to make up the difference.
- Get out of debt. If you carry thousands of pounds of credit card debt and pay the minimum payments each month, your potential retirement savings are going directly to your credit card company in the form of interest. Paying only the minimum payment on credit cards is one of the worst financial mistakes you can make. Start applying as much spare cash to your credit card balances initially and once they’re paid off, resolve to pay the balance in full each month. You’ll be amazed at how much money it frees up for retirement savings over time.
- Play catch-up. The amounts that you can now contribute into a pension plan and get full tax relief is very generous, so take advantage of this, especially if you are a higher rate tax payer.
- Consider relocating or downsizing. If you live in an area with a high cost of living, moving to a less expensive area and investing your savings for retirement could make a big difference in your ability to amass a nice nest egg.
If your kids have left the nest and you’re still living in a big house that has appreciated in value, consider selling it and buying a smaller, less expensive home. You’ll save not only on your mortgage payment, but in less obvious places like the cost of heating, cooling, insuring, and repairing your home, property taxes, etc. You can put the savings made and cash released toward your retirement.
- Consider a second income. If you’re worried about being able to amass enough money to retire, consider taking on a second job and investing your earnings. Alternatively, go back to point 1 and adjust your expectations downwards.
The older you are when you start seriously saving for retirement, the harder it will be to achieve your goals -but it can be done by following the advice above.
So don’t let doubt or discouragement keep you from starting right away, regardless of your age.