With bills to pay, it’s remarkably easy to forget about saving for retirement. This becomes even easier when there’s a pandemic in town. Even in more normal times, a lot of people don’t begin setting some money aside until later in life. Some don’t save anything at all.
This is a big problem for anyone expecting a certain lifestyle in their golden years. After all, the new State Pension pays out just £175.30 per week, or £9115.60 per year.
The good news, however, is it’s never too late to begin. Here’s what to do.
How to get saving for retirement
The best way of saving for your retirement is via a pension. If you’re not currently enrolled in your employer’s scheme (many people will be, thanks to auto-enrollment), you need to get involved as soon as possible. The great thing about a workplace pension is that your employer also makes contributions, helping your pot to grow faster.
Now, doing the above will get you started. But it still might not be enough to give you the life that you want. Moreover, those who are self-employed won’t be able to take advantage, meaning they’ll definitely need to take the bull by the horns (albeit perhaps after consulting a financial advisor).
Get a SIPP
Opening a Self-Invested Personal Pension (SIPP) is something everyone with one eye on retirement should consider. Unlike its workplace equivalent, this account puts you in full control of your savings. This, of course, isn’t the only benefit.
Like the Stocks and Shares ISA, the SIPP allows you to avoid paying any capital gains tax on the profits you make from your investments. Dividends aren’t taxed either. The only snag is that SIPP holders will need to pay tax when they start withdrawing their money.
But there’s more. Any contributions made to a SIPP qualify for tax relief at your normal rate. So, a basic rate taxpayer (20%) depositing £200 into their account, for example, will receive an extra £50 to invest from the government. This is patently a good thing since the more you have to invest, the more you can take advantage of compound growth.
Another advantage of the SIPP is that you can contribute up to £40,000 per year — the maximum ISA contribution. This being the case, a SIPP could theoretically get you to your financial goals a little sooner. That’s handy for someone building a retirement nest egg from scratch.
Having opened a SIPP, the account holder needs to decide what to fill it with. This will depend on a number of factors, particularly their age and risk tolerance.
Younger SIPP holders may want to gravitate toward riskier investments like growth and/or small-cap stocks. After all, they have many years to go before needing to access their funds and can endure some volatility. Older investors, while still having exposure to equities through funds, may want to introduce traditionally less risky assets, like bonds, into their portfolios.
Regardless of your strategy, the numbers can be truly impressive. Someone who’s able to put £200 (or £250 after tax relief) to work every month for, say, 30 years will reap massive rewards. Ignoring costs, a not-unreasonable annual return of 8% would give £340,000!
Don’t delay — get a savings plan together. In a few years, or decades, you’ll be glad you did.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Paul Summers has no position in any of the shares 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.