Planning For the (Not too Distant) Future: Save Today, Avoid Regrets Tomorrow
Question: what comes to mind when you think about the future? Blissful images of being surrounded by grandchildren on a cosy Christmas morning? Or, perhaps, you’re more psyched to sail the Caribbean with your significant other? Now, the second - and far more important - question: how will you go about funding your future? The old planning-an-awesome-retirement-but-having-no-practical-means-to-execute-it dilemma is familiar, but that doesn’t mean it’s okay. Here’s how to fix this.
A lack of savings has real consequences in the long-term, especially for your old age self. A 2016 study by Wells Fargo revealed that nearly half of millennials haven’t started saving for retirement. Why should this concern you? Because the earlier you start planning for retirement, the less stressful, and more stable, your future will be. If you’re saving nothing today, you are essentially setting yourself up for a difficult financial situation in retirement.
Aviva’s latest retirement report reveals that for a comfortable retirement, you will need at least £242 pw, which amounts to £12,590 per year. At present, the annual state pension averages at £6,556, which means you’d have to find at least an additional £6,034 a year to live in relative comfort. If, however, you want a slightly more luxurious retirement (that includes travelling), you’ll probably need about £40,000 or more, according to Which. So here’s what you can do to help shape up your pension:
- If you have access to a workplace pension plan: As required by law, all employers must offer a workplace pension scheme, and automatic enrolment is being introduced in stages until 2018. If you work in the UK and earn over £10,000 per year, you will automatically be enrolled in the scheme. There is a minimum amount that has to be contributed by you, your employer and the government in the form of tax relief. Currently, the total minimum is set at 2% of your earnings, but the amount will increase from 2018. So a good option to put more money aside each month is to increase your workplace pension contributions.
- If you are self-employed: The drawback of being self-employed is that it’s entirely up to you to make sure you’re on track with your savings and pension, but the good news is that it’s actually very easy to do so. A self-invested personal pension is a popular choice amongst many of the self-employed. It is also possible to join Nest, an auto-enrolment government scheme designed for the workplace but one that accepts self-employed individuals. The new Lifetime ISA is another attractive option for the self-employed: intended for those looking to buy their first home or those putting away cash for when they’re over 60, with contributions of over £4,000 a year to be given a 25% government top-up.
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