Retirement should be something to look forward to. After working for 40+ years, it should be a time to sit back and relax. However, in reality, retirement is a concern for many Britons due to the State Pension – the income that the UK government pays people in retirement. Not only is the UK State Pension the worst in the developed world, paying out around 30% of average earnings (compared to around 50% in the US), but the State Pension age is set to rise to 67 within the next decade, meaning many people will have to work for longer.
Yet if you plan for retirement early, you could potentially set yourself free from retirement worries. Play your cards right, and you could build up a nest egg that not only allows you to retire when you want to, but also enables you to live a comfortable lifestyle, free of money concerns, in your later years. With that in mind, here are three simple retirement saving moves that could set you free from State Pension worries.
Open a SIPP
If you want to retire on your own terms, you’ll need a decent amount of savings. The chances are you probably already have a workplace pension, but it can pay to build up your own separate savings pot on the side as well to ensure that you have plenty of money saved.
One of the most effective ways to save for retirement is to save into a Self-Invested Personal Pension (SIPP) account. This is due to the fact that when you make a contribution into a SIPP, the government will reward you for saving for retirement by giving you a bonus (called tax relief). Basic-rate taxpayers receive 20% tax relief on SIPP contributions, meaning that if you put in £800, the government will top up your contribution to £1,000. This is a fantastic deal for savers, so a good first move if you’re serious about retirement saving is to open a SIPP.
Set up a savings plan
Once your SIPP is open, put a regular savings plan in place. The more you save, the more tax relief you’ll receive, and the faster your pension pot will grow. Consider setting up a direct debit to ensure that you contribute to your account regularly.
If you struggle to save money, it’s worth spending some time analysing your expenses to see if you can cut them down. You may find that there are a number of expenses you can reduce or perhaps even eliminate entirely. There are a few savings tips here that might be helpful.
Grow your money
Finally, when you have built up some money in your SIPP, get this money working for you by investing it in growth assets such as shares and funds. These kinds of assets tend to generate far higher returns than cash savings over the long term, meaning they can help you boost your wealth significantly.
For example, if you can achieve a return of 8% on your money (a perfectly reasonable long-term return to expect from a diversified investment portfolio), you could turn £50,000 into £108,000 in 10 years.
Retirement planning doesn’t need to be complex. However, if you want to retire on your own terms, it needs to be a priority. If you’re looking to learn more about investing for retirement, you’ve come to the right place.
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