We’re all looking forward to a stress-free retirement. After years of saving into a pension, it’s finally time to reap the rewards of your hard work. Yet many of us in retirement are still unsure how to make the most of our money to ensure long-term financial security while still enjoying our retirement.
With a state pension kicking in around our mid to late 60s, building a private pension is a worthwhile option for many. Looking into accumulating investment wealth is vital for ensuring that you can enjoy your money in your retirement. This week, we’re looking at the best plans for rewarding your long-term investments.
Using tax-friendly wrappers – autoenrollment schemes
You’ll now be required to automatically pay into a pension when you’re working. This is usually a fund made up of a mix of assets, including equities and bonds. With most of us now being a part of these schemes, we’re setting up a good basis for future savings. Both you and your employer now must pay into the scheme, meaning that you’ll see your investment grow at a faster rate than saving on your own. Acting as an encouragement for workers to build up retirement savings, these systems have additional benefits when it comes to your taxes.
Every contribution that you make into your pension pot is boosted by the Government and includes some tax relief. This means that your savings will rise with inflation and your pension is free from tax until you choose to withdraw from it. Tax is only payable on the pension fund once you take an income from it, however, the first quarter of this is tax-free. After this, whatever you withdraw from your pension is taxed at your usual income tax rate.
Using tax-friendly wrappers – Individual Savings Accounts (ISAs)
To save more money for your pension, you may also want to consider using an ISA in addition to your autoenrollment scheme. This allows you to pay into your account over several years and build up your funds through regular investing. Your ISA will be invested on your behalf through various sectors, such as bonds and shares.
Unlike your autoenrollment scheme, there is no tax relief on the contributions that you make to your ISA. However, it does allow for tax-free withdrawals, which can be made at any time. This means that you can take out money before you reach the standard age of a pension, which is 55, and the money you receive is not taxed as income. This is a worthwhile addition if you’re planning on retiring before you’re 55 or just want an extra boost in your savings. As life expectancy goes up, it’s a good idea to be prepared for a longer retirement period.
Lifetime ISAs (LISAs) is a recent addition that should also be considered when saving for your retirement. These allow you to out in a maximum of £4000 a year, which then gets a 25% bonus. This stop being paid as soon as you hit 50, but can be used to assemble a decent start to your pension. Working as a hybrid of a pension and an ISA, these can help you to save an additional £1000 per year with regular investments.
Although this may seem obvious, the earlier you start to save, the more money you’ll have. While it can be difficult to think about retirement at the beginning of your working life, you’ll give yourself more of a chance to save enough for a comfortable retirement.
With autoenrollment, younger workers will already be saving in a workplace pension. However, this doesn’t mean that you shouldn’t look into other options. Using an ISA or a similar tax-free investment, young savers can give their pension more of a chance to grow. This could even mean an earlier retirement, as you won’t be as reliant on your state pension.
Monitoring your money
Keeping an eye on your pensions will give you a better understanding of how you are doing. You’ll be better able to access if your schemes are working for you and take any corrective action that may be required. Whether you want to change investments or increase your monthly contributions, you’ll find yourself I a better position to do this if you monitor your money. Before you make any big decisions or move your money into different investments, its best to check with a professional financial adviser first.