Fancy shortening your working life or cruising the world in your golden years? Everyone needs a retirement plan and while constant changes in pensions legislation make it seem like the goalposts keep moving, a few canny moves can help you secure the retirement you desire.
1. Picture Your Retirement
"Life after work" is how we think of retirement today - a point in life when you have the time to make the most of travel, recreation and time with family and friends. Start with your destination in mind. Do you want to travel overseas? If so, how often? How regularly do you want to buy a new car? Will you stay in the family home or down- size? Are there expensive hobbies or memberships that you'll want to keep up or take up? Identify some ideal scenarios and goals.
2. Set the Date
Circumstances can change, but to know what you'll need to save to meet your retirement goals you'll need to have an idea of when you want to stop work. Consider how healthy you're likely to be in retirement too, depending on your genetics, health habits and diet. If you're in good health you might want to work a little longer and vice versa.
3. Start Early
Amassing a healthy savings pot is a bit like starting a business - it can take a lot of sacrifice and effort to get it off the ground, but it gets easier over time. Budgeting wisely to make small contributions in your early days of working can make a huge difference in the long run.
The wonders of compounding - reinvesting proceeds and earning returns on returns - could leave you with a sizeable pension pot.
4. Consider Your Investments
What you invest in should depend largely on your attitude to risk, your ability to take risk and your investment time-frame. If you have a long time until retirement a mix of developed and emerging market equities is likely to be your best bet. As retirement nears, it might be appropriate to move out some assets out of the stock market into lower-risk asset classes, such as bonds and cash. Many pension providers automatically "lifestyle" funds. While this may be a good idea, it is important that your investment strategy is tailored to your personal circumstances.
5. Save Tax
It is possible to put up to £40,000 per annum of your earnings each tax year into a pension with tax relief at your highest marginal rate. You can also carry forward any unused allowances at £40,000 a year for the previous three years. This is a great chance to boost your pension pot and benefit from any available tax relief. It is limited by contributions you have made in previous tax years and your total taxable income in the year in which the contributions are made.
6. Stay on Track
With the introduction of Auto Enrolment in 2015 employee workplace pension scheme membership increased to 73% in 2017 driven predominantly by increases in membership of occupational defined contribution schemes within the private sector.
Yet despite having accumulated sizable sums, almost three-quarters of the working population in the UK have no idea how much money they will have to live on in retirement. At any time, it's wise to know where you're at.
7. Keep your balance
Over time, your pension investments can move out of line with your goals and risk profile and you might find you are taking more, or less, risk than is appropriate.
Regular rebalancing of your portfolio in line with your asset allocation will make sure that you are invested where you should be.
8. Plan For The Unexpected
You could lose your job, fall ill, have an accident or be saddled with more pressing financial objectives. It's wise to put in place some protection to safeguard your retirement goals.
9. The Big Picture
You must also consider what resources you will have to draw on in retirement, other than private pension savings? Will you release equity from your home? What will you get from the state and when? A state pension profiler can be found at www.gov.uk/check-state-pension.
10. Know Your Options
You can access a money purchase pension pot from age 55, taking 25 per cent as tax-free cash. Depending on your circumstances you might choose to buy an annuity but equally you could decide to keep the remainder of your pension invested and draw an income from it instead, or even pass it on to the next generation.