3 huge retirement savings mistakes that are easy to avoid

If you want to retire comfortably, it is essential you avoid these key savings mistakes.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When it comes to saving for retirement, we all have good intentions. We put away a little every month, with the hopes of being able to achieve a comfortable old age.

However, figures show that a large percentage of future retirees are on track to leave the workforce without enough money to be able to live comfortably.

The figures I’m referring to have been put together by insurer Royal London. Earlier this year, the company published a study which claimed British people will need at least £260,000 to retire today without money worries. Meanwhile, LV=, the insurance and savings business, estimates the average pot of money held by 45 to 54 year-olds is just £71,340.

These figures really concern me because they indicate millions of people are set to receive a nasty surprise when they leave the workforce.

If you are like me, these figures will make you want to take actions to safeguard your own retirement. And I have three simple tips to help you do just that.

Start early

The first mistake people tend to make when saving for retirement is not getting started soon enough. You might think you don’t need to save for retirement until later in your career, but the earlier you get started, the better, because your money has more time to grow.

For example, £100 a month invested at a rate of 5% per annum for 50 years will grow to £258,000. Just 10 years less, and your £100 a month will only be worth £149,000 after 40 years of saving. Those first 10 years of saving could be the difference between a comfortable retirement and a nasty surprise.

A little help goes a long way 

My second tip is to make the most of tax breaks and perks offered by the government to encourage people to save. 

Interest earned on money held within ISAs and SIPPs is tax-free, and you don’t even need to declare money held within an ISA to the tax man. 

What’s more, SIPP contributions are given basic rate tax relief at 20%, so for every £800 you put in, the taxman will add £200. Meanwhile, the taxman will add 25% to lifetime ISA (LISA) contributions up to £4,000, meaning you can claim £1,000 of free cash every year.

With potentially tens of thousands of pounds in free cash available over your lifetime, overlooking these savings perks could be a big mistake. 

Invest your money 

As my colleague, Edward Sheldon recently pointed out, a staggering 46% of the £585bn saved in ISAs across the UK, is held in cash. With the average interest rate on cash ISAs at less than 1% today, and inflation clocking in at 2.4%, it means these cash savings are losing purchasing power. 

If you want to have a comfortable retirement, you need to get your savings working for you. The best way to do this is to invest your money. 

Over the past decade, the FTSE 250 has produced an average annual return of approximately 9%, eclipsing the yield offered by most cash ISAs out there today. Investing is by far the best option for retirement savers.

For investors with a short time horizon this probably isn’t the best solution, but if you’re not planning to retire for several decades, you will almost certainly benefit from investing your retirement pot.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »