The start of a new year is always a good time to review your finances. This is particularly true if you’re saving for retirement – now is the perfect time to analyse your progress and determine whether you’re on track to achieve your goals.
Need to get your retirement savings into shape? Here’s a look at four smart financial moves that could help you.
Consolidate your pensions
One of the smartest things you can do if you’re serious about retirement planning is consolidate all your different pension accounts. When you have multiple pensions set up (as a lot of people do because they’ve had multiple employers over the years) it’s hard to keep track of your overall pension balance and how your money is invested. This makes the process of planning for retirement more challenging.
By consolidating all your pensions into one account, you’ll find it much easier to keep track of your pension savings. This, in turn, will make it easier to determine whether you’re on track to achieve your financial goals.
I’ll point out that there are some situations in which a pension consolidation isn’t the best move. For example, if you’re a member of a final salary pension scheme, you may be better off leaving your account as it is. However, in general, bringing together your old pension accounts is a great idea.
Determine your overall asset allocation
Another smart move to make is to determine your overall asset allocation across all your different investment accounts (pensions, ISAs, savings accounts). When you have multiple accounts set up, it can be challenging to work out exactly how much exposure you have to different asset classes. This is a problem, because your money may not be invested optimally.
What I like to do at the start of every year is to create a spreadsheet that lists all my assets across my different accounts. Then, I group the assets into different asset classes (UK equities, global equities, property, cash) so I can see exactly how my money is invested overall. By doing this, I can determine whether I need to increase or decrease my exposure to certain asset classes.
Review your tax-efficiency
Next, make sure you’re taking advantage of all the tax-efficient investment options that are on offer.
You probably know that you can put £20,000 into a Stocks and Shares ISA per year and invest this tax-free, but did you know that the Lifetime ISA (which is only open to those aged 18-40) comes with bonuses of up to £1,000 per year?
And did you know that if you contribute into your pension, the government will add in some extra money for you? The more tax-efficient your strategy, the better.
Review your investments
Finally, the start of the year is always a good time to monitor your existing investments. Do all your holdings still suit your risk tolerance? Is it worth selling any small holdings to clean up your portfolio? Have your funds performed as well as you expected? And if not, are there better options? Is your portfolio diversified properly? Are there any stocks that are worth buying at the present time? These are all good questions to ask when reviewing your investments at the start of a new year.
