It’s never too early to plan for retirement savings, and with a few smart steps, you can set yourself up to achieve everything you want in life. Here are the money action points to supercharge them across the decades – in your 20s, 30s, 40s, 50s and 60s.
Words: Rosalind Ryan
The financial landscape is looking bumpy for the UK right now, with fears over what will happen after Brexit and historically low savings rates. So, it’s no surprise to learn that we’re only saving 4.9% of our income – the lowest level since records began in 1963.
But that doesn’t mean we should ignore our financial future and just hope things will get better. The earlier you start planning for your retirement, the easier (and more comfortable) it will be. By making some small but smart decisions in every decade, you can supercharge your wealth and enjoy the retirement you want.
Follow the tips below on how to boost your income, bolster your retirement savings and get the most out of your pension pot.
In your 20s
Your 20s might seem far too young to start thinking about retiring but experts agree that the earlier you start doing something, the better. The general rule is to put aside half your age as a percentage of your salary; if you’re 22, you should try to save around 11% towards your retirement savings. You can also:
Ask about automatic enrolment
All employers must now provide a workplace pension, under the government’s automatic enrolment scheme. It’s been designed to make saving for your future much easier, as you’re automatically signed up to it by your employer. Your company must pay in a certain percentage of your salary every month, while you also have to make a contribution. The government then gives you tax relief (i.e. you don’t pay tax) on this amount, taking your total even further. Talk to your HR department if you have any questions, including how much you may need to pay in.
Deal with any debt
You may be struggling with student debt, credit card costs or a never-ending overdraft, making it tough to claw back any cash for savings. One answer could be a consolidation loan, which is when you merge lots of smaller, individual debts into one big loan. A big plus is that you’ll only be in debt to one lender, but a big minus could be difficulties keeping up with the repayments. Get some free advice from My Money Steps, an online service from National Debtline.
Consider a personal pension
If you can’t join the auto-enrolment scheme through your work, perhaps because you’re self-employed for example, you can still invest in a personal pension: a pension plan that you choose for yourself. Personal pension plans include:
- Stakeholder pension – a pension with limited charges and flexible contributions
- Self-invested personal pension (SIPP) – suitable for those with investment as it offers a wide range of choice and control.
It’s a good idea to talk to a good independent financial adviser to find the best pension product for you.
Look into an ISA
An individual savings account (ISA) is a way to save money, tax-free. There are many different types of ISA, including a Lifetime ISA, which is good for retirement planning. You pay in a certain amount every tax year (up to £4,000 in the 2019/2020 tax year), then the government will give you a 25% bonus on your investment. This can help you either save for your first home or your retirement. You’ll pay a penalty charge if you withdraw the money early, so use it to purchase your first home or save towards later life. The same eligibility rules apply as for Stocks and Shares ISAs but it is only available for someone under the age of 40 to open. Once you have opened a Lifetime ISA, you can continue to add money until you are 50.
In your 30s
At this age, you might be juggling a mortgage and/or a young family, so putting something away towards your retirement savings feels like a big stretch. But if you can make some simple changes today, future-you will thank you for it. You could:
Get clever with your accounts
If you’ve had the same savings or current account for years, it’s time to give them a makeover. You could find a better savings rate, or switch to an account that offers new customers a great deal. This way, you’ll be making more of the money you already have, rather than trying to magic up money from somewhere else. Comparison sites such as Moneyfacts or Money Saving Expert are a good place to start.
Look into different ISAs
Cash ISAs are tax-free but they tend to have low savings rates. If you’re happy to take a risk, then a stocks and shares ISA might provide a higher return on your investment. They do involve some homework as you’ll need to find a provider, then choose how to invest your money – for example, in bonds, funds, or actual stocks and shares. Remember that the value of your investments can go down as well as up, so talk to an authorised financial adviser before making any decisions.
Overpay your mortgage
When savings rates are very low, overpaying your mortgage is a great way to save on the interest. It also means you’ll pay off your property much faster. Most lenders will let you pay up to 10% extra every year, but check with yours first – you could be struck by expensive fees or penalties. However, if you have credit card debts, loans or other debt with high interest rates, do clear those first before overpaying your mortgage. If in doubt, reach out to your authorised financial adviser.
Find cheaper providers
It’s something we’ve heard a million times before, but switching your gas, electricity or insurance provider really can save you some serious cash. Companies bank on you being too busy to notice when special rates have finished, or whether prices have slowly been creeping up. Spend an afternoon on various different comparison sites and you’ll be surprised at how much you could save.
In your 40s
Don’t panic – retirement might only be 20 or so years away, but there’s still plenty you can do in your 40s to supercharge your retirement savings. Why not try:
Reviewing your pension pot
Your pension pot is the total amount you have invested across all your pension plans, which includes any workplace or personal pensions. The State Pension is an additional source of pension income that may become available in retirement, although you shouldn’t rely on this alone – in 2019/2020 tax year it will be £168.60 a week excluding interest (£8,767.20 a year). With the help of an authorised financial adviser, work out exactly how much you need to live on during retirement. Then you can see which pension investments are on track to achieve this, and which ones need replacing.
Paying off your mortgage
We know it’s a good idea to overpay your mortgage, so – if you can afford it – paying off the whole lot will free up even more of your future finances. Any bonuses, inheritance or savings released should go towards clearing the biggest debt most of us will take on in our lives. If paying off your mortgage isn’t possible, remortgaging your home could save thousands every year on repayments instead.
Putting extra into your pension
You can increase your pension contributions whenever you like to help boost your retirement income. Topping up your pension has a number of benefits; it’s one of the most tax-efficient ways to save money and your employer could match any increase, doubling the amount, for example. Even if you can only afford an extra £50 a month, that’s an extra £15,000 over the next 25 years.
Track down any missing pensions
If you’ve had several different jobs over the years, you could have a number of old workplace pensions that you’re still entitled to. Your first step is to contact The Pension Tracing Service which can help you track down pension schemes you no longer pay into. You could then consolidate these existing pensions into one new scheme, but get some financial advice before you do; you may be liable for large penalties or fees for transferring your pension.
In your 50s
Even if you don’t start saving for your retirement until your 50s – and plenty of people don’t – it’s still possible to plan for the life you want. You could:
Get a pension MOT
Start by checking your State Pension to find out how much you could get and when – this is also known as your State Pension forecast You could also talk to your HR department to find out how much you’re likely to get towards retirement savings from your workplace pension.
Start by checking your State Pension to find out how much you could get and when – this is also known as your . You can no longer top up a State Pension but you can still invest in other pension products or savings, such as a cash ISA. You could also talk to your HR department to find out how much you’re likely to get towards retirement savings from your workplace pension.
Switch your investments
As you get closer to retirement age, you may want to move your pension into low-risk investments rather than more volatile stocks and shares. This can help protect your savings from sudden changes in the stock market. If the value of your investments falls, you may not have time to build them back up again before you retire. Again, seek financial advice before moving any investments so that you avoid paying penalty fees or charges.
Make your house work harder
If you had kids, they have (hopefully) left home and you may have a spare room to rent to a lodger – the government says you can earn £7,500 a year tax-free by renting out a room. If your house is particularly cool, classic or distinctive, you could hire it out to film companies or magazines for photo shoots. Start by registering with a reputable location agency such as Shoot Factory, Light Locations or JJ Media.
In your 60s
At this stage, it may be too late to think about opening a new pension plan, but you can make the most of the retirement savings you already have. Consider:
Do you really want to retire?
For some time, retirement no longer means a gold watch and a goodbye from your boss. You can choose to work part-time, on a contract basis, or even extend the date you want to retire. Talk to your company if you’d like to keep working. You can also defer the State Pension, which increases the amount you get for every week you defer: it works out at around 5.8% extra a year.
Pay off remaining debts
This is a smart move at any age but if you have debts after retirement, you’ll be eating into your savings with little prospect of being able to replace them. You could switch credit card debt to a 0% card, clear any outstanding loans or pay off your mortgage. Work out what your biggest debt is and pay that off first before moving down the list. The National Debtline site has guidance on how to do this but it’s strongly recommended to engage an authorised financial adviser because pension drawdown decisions are irreversible.
Check whether you’re on the best retirement plan
There are several ways you can draw on your pension after retirement. These include:
- An annuity – when you exchange your pension for a fixed amount that gives you a guaranteed income for life
- Drawdown scheme – which is a way of investing your pension into different funds to give you a regular income.
There are pros and cons to both – mainly stability versus flexibility – so make sure you’re happy with your choice. When you’re over 50, you might be able to get free advice from the government-backed Pension Wise scheme.
Do some life admin
Don’t assume that your other half will automatically get your pension if you die. Talk to your pension administrator (the person in charge of your workplace pension) or a financial adviser to find out the benefits of your particular pension investments. If you haven’t already, make a will. This is the best way to guarantee that loved ones are looked after.
Finally, enjoy your retirement!
You’ve worked hard throughout your life to make your golden years as comfortable as possible. So put your feet up and relax – you have, quite literally, earned it.