With most of us now paying into Defined Contribution pension schemes where what we get in retirement ultimately depends on the performance of our pension investments and how much we pay in, as opposed to the traditional Defined Benefit schemes where there was the luxury of a guaranteed final salary, it is vital that due thought and consideration are given to maximising retirement savings.
Looking for the best way to maximise savings for retirement? Read on to learn how you can give your future a solid foundation.
1. Take the ‘small and often’ approach
Thinking about how much to save for retirement, the general rule is that you will need 70 per cent of your working income to maintain your desired lifestyle once you finish work. So, if you retire on a salary of £60,000, you will need to aim for an income in retirement of around £42,000.
If, however, you think, ‘how will I ever save £42,000’, it can feel daunting. But the fact is that, if you’ve given yourself enough time, you won’t need to save lots of money at the outset. You can start of smaller with a realistic retirement savings goal, and then build up over time as and when possible.
Putting small amounts into a pension plan and/or a suitable Individual Savings Plan (ISA) will start the compounding process which sees the money generated, for example interest, going back into the retirement savings pot and generating its own growth.
2. Put a retirement savings roadmap in place
Setting yourself different savings goals over different time frames can be both motivational and effective.
Whilst it can be tricky to know how the investments in your pension fund will perform over time, you may assume a steady rate of 4 per cent could be realistic, although it could be higher or lower than that. Taking investment management advice could help boost your retirement savings.
Retirement planning advice will also help you get and stay on track to meet your retirement savings goals as well as helping you work out how much to save for retirement.
An expert will guide you as to your current earnings and how much you might need to maintain a similar lifestyle in retirement depending on your age and any other income sources you may have. This will then give you an idea of the size of the pension pot you will need to accumulate over time, so that you can get a clear picture of how much to save for retirement.
3. Diversify your investments
Diversification means putting your money in different places or assets rather than all in one place. When you have money in investments and pensions that are linked to the stock markets, this is especially important.
It is also important to make use of your tax-efficient allowances, diversifying across different risk levels and keeping them appropriate to your retirement savings goals. Combining a pension plan with an ISA could work better than going down the route of one or the other. However, it is vital to take tailored advice from a retirement planning specialist to make sure you are making the right decisions for your individual goals and circumstances.
4. Claim what you can
If you are employed, your employer will usually match your own pension contributions or pay in a certain percentage of what you do.
If you are self-employed, you can use the ‘carry forward’ rule to benefit from any unused allowances from your previous thee tax years in order to maximise your pension contributions for the current tax year. This also means that if you don’t use all your allowance for the current year, you can carry it forward and continue to benefit from it in the future.
5. Take tailored financial advice
One of the best ways to maximise savings for retirement is to take tailored retirement planning advice from an independent specialist. Everyone is different and has different objectives, so that individual advice really is key to getting you to where you need to be.
It is wise to have regular check-ins with your adviser to ensure you stay on track to meet your retirement savings goals.
Looking for the best way to maximise savings for retirement? Talk to the specialist retirement planners at PMW.
At Partridge Muir & Warren, we have been advising individuals and couples on their retirement options for more than 50 years. Our advice is independent, widely trusted and focused on the best interests and personal goals of our clients.