How To Best Prepare For Your Retirement
I think a lotttt of us can be guilty of not planning for the future, and as I've discussed in a previous post, psychology tests show that a part of the brain fires up when we think about our future self, which indicates that we think of our future self as a completely different person, which makes it hard to make decisions now, even if we know it will benefit us greatly down the line.
As I said, I'm definitely guilty of this. When I got my first proper job at 18 years old (good memories, I loved that job!), I had no interest at all in the pension scheme or how much I had to put into it each month. Even now, many years down the line, I am still reluctant to save money for a future that is so far away. However, being in the personal finance blogging community, helps me to see that I really, really need to start saving for the future now!
If you were to rely on the new flat rate pension, you would receive approximately £638 per month to live on (approx £8300 a year), which may be feasible for you to live on, but it may also not be. Unless you have a crystal ball, you're not going to be able to see into the future to see what is going to happen in terms of jobs, health, family etc - so it's far better to be prepared than not.
Even if retirement feels like a long way off, the recent influx of news stories about pension changes and retirement uncertainty have probably got you thinking about what your finances might look like in the future. It’s all too easy to put these thoughts to the back of your mind, though, when you have other more pressing expenses on your mind.
However, by sparing a thought for the future you could help to make your retirement more comfortable and rewarding. Here are a few things that you can do now to make sure that you have funds available later:
In your 20s
· Switch your bank account for better rewards and value. A lot of people open a bank account as a child or a student… and then just stick with it. While it may seem easy to just leave your bank account alone, bank accounts are competing for your custom and, as such, may offer a financial bonus or reduced rate for switching over.
· Make clearing debts a priority. Saving is important, but if you’re paying more in interest on your debts each month than you’re gaining in savings then you’re losing out in the long run. There are 2 main methods that people use to clear their debt - the debt avalanche method or the debt snowball method.
· Have goals and work towards them. Saving money is a huge priority in your 20's, because you are likely to have to pay for your big purchases in your 20's or 30's - namely things like a house, children, cars, and if you also save more before paying for all of those things, you will be putting that extra income to good use instead of wasting it.
While these first steps may not sound like they have much to do with a retirement fund, the idea is that laying a solid financial foundation can put you in a better position as you get older. The sooner that you start, the better! There are more and more people who are concentrating on early retirement, and many have been able to retire in their 20's - you don't have to work until the absolute maximum age if you don't want to!
In your 30s
· Consider upping your pension contributions. You will probably have been enrolled into an automatic pension plan by your employer, but the default will be to pay quite a small percentage of your wage into it each month. However, you should be able to voluntarily up this contribution to whatever you can afford, allowing you to save a larger dedicated pension fund.
· Turn saving into a habit. If you’ve managed to clear any debts in your 20s then redirect the money that was being spent on monthly repayments into a savings account. You might want to set up a monthly standing order that moves money directly into your savings account so that it is gone before you have the chance to spend it.
· Reflect on your spending habits. The great thing about being in your 30s is that you still have plenty of time to rectify any mistakes that you may have made in your younger years. Take some time to reflect on the money that you spend each month – is there any fat that can be trimmed? A good budget will keep you focused on your goals and plug any leaks in your cash flow - my favourite is the Zero Sum budget method.
In your 40s
· Act now! Which is to say, if you haven’t started saving or managed to pay off accumulated debt yet, it’s time to really put the effort in. If there are specific factors making it difficult then it may be time to consult with a specialist; you should never be ashamed to ask for help.
· Start considering a target retirement age, as well as a plan for what your lifestyle will be like. This gives you something to aim for, which means you can but the right measures in place to hit your goal.
Once you hit your 50s, you should be ready to start thinking about retirement in far more concrete terms. Even at much younger ages, though, there are measures to take that could help your retirement flourish.
There are more financial options available to older people now than ever before, with choices such as over-55 mortgages and lifetime mortgages giving more flexibility in later life. But that doesn’t mean that the choices you make before retirement won’t have a real impact. Start planning sooner rather than later and put yourself in control.
This post was brought to you by Key Retirement. They are a financial services company specialising in helping people in retirement or approaching retirement age. This includes independent equity release advice for those considering releasing equity on their home. Unless you decide to go ahead, the service is completely free of charge, as their typical advice fee of 1.95% of the amount released would only be payable on completion of a plan. You can contact Key Retirement on 0808 252 9170.
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