Your pension is your retirement income, which means for many of us we think it’s so far away it’s not worth worrying about.
Pension education isn’t taught in schools, and we usually first hear about it when our employer workplace pension kicks in at our first full-time job. That also means there are many people in their 40s and 50s coming to the realisation that their retirement pot isn’t as large as it needs to be to live comfortably.
Did you know a single person needs a minimum of £14,000 a year to scrape by in retirement, and £43,000 a year to live comfortably? If you retire at 65 and hope for at least twenty years’ retirement, that’s a whopping £280,000 minimum or £860,000 for a comfy retirement – not accounting for inflation, either.
Don’t panic! There are plenty of things you can do in every decade of your life to add to your pension pot. Here’s what you could be doing to boost your retirement fund.
In your 20s
Don’t opt out of your workplace pension. At this age, it feels like you want to keep as much of your earned money as possible. However, you don’t need to be putting anything extra into your pension at this point because it has decades for the investment to grow.
Importantly, the workplace pension includes both an employer contribution and a Government one – so that’s free money towards your retirement. Losing £50 a month might feel tough right now, but that’s one dinner out or having to save a bit longer for the next bit of great tech. What it means for your future, however, is a sturdy foundation for your retirement pot!
Check where your pension funds are invested, too. Most pensions have automatic high, medium, and low risk portfolios. At a young age, you can afford to go for the higher risk portfolio, as you have time to ride out the lows as well as the highs. If you’re not happy with your workplace pension fund offering or platform fees, set up a private pension and transfer from your workplace pension scheme.
You should also consider opening a Lifetime ISA. This is a unique savings product in which you can save up to £4000 a year – with a Government top-up, up to £1000 free a year. This product is unique in that it can only be used for two things: either as a deposit for your first property, or as a retirement tax-free lump sum that is accessed at the age of 60. Either way, it’s a great way to get some extra cash topping up your savings for one of two major life events.
In your 30s
Up your workplace pension contributions. Even if by one per cent, this can make a big difference in the long term. You should also be thinking about alternative investments, too. Pensions are great for retirement, but diversifying your portfolio can help mitigate against market highs and lows. It’s time to put some of your savings into the stock market, property (if you can), or even interesting investments like art, whisky, or wine.
It’s about time to speak to a financial advisor, too. Getting a big-picture look at your finances and future plans can help you work out what you need to set aside for your retirement and other investments for a long-term plan.
Finally, if you have young children, set up a Junior ISA for them – and, if you really want to set them up well, a pension! Yes, you can set up pensions for babies as soon as they’re born. It’s a good way to plan ahead for a tax efficient legacy – and has literally 60 years to mature even a modest investment into a tidy sum.
In your 40s
First, check that you’re getting any money you’re entitled to receive, such as child benefits or Working Tax Credit. Turn2Us has a great calculator as well as a grant finder, which can help boost your coffers and give you a chance to top up your pension pot.
Once again, increasing your pension contributions from your workplace pension is a good move at this point. It could also be worth discussing additional employer contributions instead of getting a pay rise, especially if you would be pushed over a tax bracket with a straightforward rise.
It’s also time to consider moving to a medium risk portfolio in your pension fund. If your children are heading off to university, consider your housing options as you become an empty nester. You could downsize now – or you could earn up to £7,500 tax-free a year by taking in a lodger. An extra £7,500 a year into your pension still has a couple of decades to grow into a chunky sum by retirement!
In your 50s
Of course, we’re also going to suggest upping your pension contributions once more. Your retirement might be ten or more years away, but it’s time to make your free Government and employer top ups work hard.
But, now is a good time to consider starting a side hustle. Yes, really! Your decades of business experience will lend itself to making you a valuable person to have on board a startup project, or a merger, or any kind of business activity. Or, perhaps you want to take what you’ve learned in business and launch a freelance marketing, PR, or communications consultancy.
You don’t need to do this full-time – you can keep your day job (contract permitting, check for non compete clauses first). But a side hustle is a great way to use the expertise you have to earn some extra cash for your retirement. And, by now, you probably have a savings safety net to see you through if you need a bit of capital investment to get started.
In your 60s
If you want to keep working, once you reach State Pension age you don’t pay National Insurance anymore. That can give you a tidy extra sum to put away in your retirement savings. It’s also time to speak to a financial advisor again to find out what your pension options are – lump sum, income, annuity? There are so many ways to access your pension pot and many will allow you to keep some money invested for the future. An independent financial advisor will be able to assess the best plans for your personal circumstances and future plans.
What about property equity?
If you haven’t downsized your home yet, it could be time to think of doing so as you approach retirement. Many empty nesters stay in the home they raised their family in – but this brings with it larger running costs. Taking equity out of your home by downsizing can provide a large chunk of cash to boost your pension – but it isn’t for everyone.
For those who have no family, releasing equity from your existing home can be a way to achieve a more financially free retirement. But it isn’t suitable for many people, so always seek independent advice.
It’s also time to assess your current investments and their viability for ongoing returns. For example, could now be the time to liquidate your art or classic car collection, whisky or wine investments, or even jewellery you no longer wear. The cash raised can sit in a high yield fixed savings account for the next three to five years, solidifying your return in a less risky way. The general rule of thumb is, the closer you are to retirement, the less risk you should be taking.
Whatever your age right now, there is still time to make changes to improve your retirement fund. Sign up to MoneyMagpie’s investing newsletter for regular tips and guides on how to invest at any age, with any budget.
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