With the new State Pension currently delivering a maximum of £168.60 per week, it’s a reasonable stance to be worried about your income in retirement if that’s all you will have.
The monthly figure works out at just £730.60 and it’s only around £8,767 each year. Peanuts, right? But it could be even worse because the actual amount you get depends on your National Insurance record.
Through no fault of your own, you could easily have an incomplete record of National Insurance payments. It only takes a few years out of the workforce, or a period of part-time working to tarnish your National Insurance record, which could lower the figure you eventually get in State Pension payments.
Admittedly, you may be able to get National Insurance credits in some years if you can’t pay National Insurance. For example, when you’re claiming benefits because you’re ill or unemployed. Such credits can help to fill gaps in your National Insurance record, but I don’t believe the government shouts from the rooftops about the availability of these credits, and some folks could miss out.
If you do retire on a reduced State Pension, you may qualify for Pension Credits designed to bring your pension up to a level high enough to keep you out of abject poverty. But the rules are complicated, and who knows for how long such benefits will endure given the dire shortfalls in the government’s coffers?
Don’t leave your State Pension outcome to chance. Here are three things I’d do right away.
Check your eligibility
It’s easier than ever to find out where you stand with the State Pension right now. The government has done a good job of putting all the information online and you can get a State Pension estimate and a breakdown of your National Insurance record by clicking on this link.
Work out how much you need to save
I’m assuming that you’re already on the same page as me in realising that even if you get the full State Pension it won’t be enough to give you a happy and fulfilling financial retirement.
The only way out of the pension poverty trap is to build up an additional pot of money you can use to supplement your State Pension. But how much should you be saving? One rule of thumb I like says we should halve the age that we are when we begin saving for retirement and save at least that percentage of our pre-tax salaries every year until we retire.
At age 30, for example, we should, therefore, save 15% of our pre-tax salaries every year. So, if you are on, say £20,000 a year, save £3,000, which works out at £250 a month.
Find a decent investment vehicle
It’s no good squirrelling your monthly savings away in a low-interest cash savings account. You can get better returns by investing in shares or share-backed investments. And it’s important to pick an investment vehicle with tax benefits too, such as a Workplace Pension, Self-Invested Personal Pension or a Stocks and Shares Individual Savings Account (ISA).
Stay tuned to The Motley Fool for more information on the subject of investing for retirement.
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Kevin Godbold has no position in any 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.