Don’t live on the breadline when you retire in the UK
Did you know that nearly one million British pensioners are still working? Sure, maybe they enjoy their jobs – but more likely, they can’t afford to retire.
The gap between how much people save and the amount they expect to live on when they retire differs by an average £50,000 for every person of working age. And this gap is only going to get bigger.
We are living longer, which means our retirement savings have to last longer.
So, how do you avoid running out of money when you retire?
There is a simple answer – Plan. Plan for your financial future while you’re still at work. Pensions are one of the most tax efficient ways to invest for retirement. Only you can decide how much to save, but as a general rule if you want to retire at 65, as I do, you should divide your current age by 2. Contribute this percentage of your earnings to your retirement fund every year.
The sooner you begin to contribute to your pension, the less you’ll have to contribute each month.
If you already have a pension, that’s great news. But there are factors that can affect your pension, namely how much you save, how early you start and the performance of your investments.
You may not have realised it but your pension contributions are actually invested. The better the investments perform, the more the money pot is going to grow – although there is no guarantee – investments can fall in value as well as rise.
For example, a 35 year old with a £20,000 pension would have the following fund available at age 65 depending on the strength of his investments.
5% investment growth – £55,270 pension
7% investment growth – £97,347 pension
9% investment growth – £169,669 pension
Just 2% difference in investment growth can mean a different of over £70,000. Get your papers from your bottom draw and have a good look over your pension – you might be able to improve its performance and therefore be looking at a bigger sum when you retire.