Most financial experts recommend starting your retirement savings in your 20s, but it’s not a perfect world and lots of people don’t think about it until later on.
There’s no need to worry however, as there are still ways you can start planning sensibly for the years when you no longer want to work. Here are some tips for living comfortably after retirement.
Work out how much you’ll need to retire
Many people don’t really understand the amount they’ll need to have a truly comfortable retirement. In general, comfort is inextricably linked to the lifestyle you’ve been accustomed to, and as your income is likely to fall, you need to work out ways to make up the difference.
Calculate how much you pay out every month now, and estimate the likely outgoings when you retire. The idea is to figure out how much you need to save as a proportion of your salary. Take into account that your bills will be different in 30 years. For example, you may no longer be paying your mortgage but your energy bills will be higher.
List what your expenses are likely to be, and think about where you’re likely to be living. When you have this information, then you can calculate a rough amount that you’ll need. This is obviously based on today’s prices, but will give you an income goal to keep in mind.
When are you likely to retire?
Perhaps you’re planning to retire when your state pension starts – this has just been increased by the government to 68 and is likely to continue increasing over the years.
However, if you’re fit and well at retirement age perhaps you may not want to retire. You don’t have to collect the state pension straight away. Since April 2011, it’s been illegal for your employer to fire you when you are at state retirement age so, you are legally entitled to stay in your job for as long as you want to, giving you more time to build up your retirement pot.
It’s a good idea to retire later if you can, as it means you’ll be more likely to maintain the quality of life that you want for longer. If you defer receiving your state pension, when you do decide to take it you will get this money in a lump sum, or as additional money on top of your regular payment.
How much do you already have?
You may have some pensions from previous employers, which should be checked and transferred in some cases. Decide also what to do with any savings or investments you already have. You can either leave the money where it is, or pay the extra into your pension. You can pay up to your salary amount or £40,000 a year (if your salary is less than this) into your pension. You can also claim income tax relief on this amount.
Pay any debts you have if you can. If you pay off expensive overdraft debt or credit card bills you will free money to pay into your pension in the long term. It can be worth taking the hit now for the chance of saving more later. If you have lots of credit cards then transfer on to a 0% balance card, and keep shifting it to new ones as you pay off.
Also think about your mortgage and whether you can reduce it or, better still, clear it before retirement. Taking action on all of these smaller things will help in the future.
Start a pension now
Saving into a pension scheme is worthwhile as it’s tax free, due to your contributions coming straight from your wages. Add yours to your employer contributions and you can save more than you would with other kinds of plans, such as ISAs or other investment products.
You should save as much as you can into a pension. It’s worth taking a hard look at your finances and work out a budget to allow to pay the maximum possible into your pension. To illustrate the difference even a bit of money can make, if you pay an extra £50 into your pension every month then that adds up to an extra £16,200 into your pot over 27 years.
Use your property to fund retirement
This is becoming more common, due in part to the massive price increases there have been in property over the last few decades. Many homeowners found themselves sitting on a far larger amount than they anticipated when they bought their house.
For example, the average house price in 1990 was roughly £68,500. In 2017, it’s £218,000 – that’s an increase of 300%. However, there is absolutely no guarantee that property will perform well in the future, particularly with the increasingly unclear picture caused by the withdrawal from the EU.
You can either downsize – sell your property and move somewhere smaller on retirement, leaving you with some money to fund your retirement – or take out a ‘lifetime’ mortgage, which is an equity release scheme on the house you live in. However, both will impact the amount you’re able to leave behind for any dependents.
Whatever you’re thinking about for your pension fund, it’s always worth taking professional financial advice before making any major decisions.