Low income retirement planning requires some very careful moves. If you can only afford to put a small amount aside for your future, you need to make sure you’re making the most of that money.
Even if your income is low right now, it could always change in the future. It’s important that you start building your nest egg as soon as possible regardless of how much you currently earn.
Here are some tips to help you plan your retirement, no matter how low your income is.
1. Start saving as soon as possible
When it comes to low income retirement planning, time is your best friend. The earlier you start saving for your pension, the more your money will grow. If you start saving when you’re 20 years old, even £100 put aside every month will result in a decent amount by the time you reach retirement age. But if you don’t start saving and investing until your late 30s because you’re “waiting until I earn more”, your pension will suffer. You can always increase your pension contribution as your earnings go up.
You can use the pension calculator from Money Advice Service to get an estimate of the pension income you might receive when you retire. The tool also allows you to calculate the amount in reverse. This means you can decide how much you’d like to get when you retire and it will identify your shortfall.
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2. Get rid of debt
If you’re in debt right now and you aren’t contributing much to your pension, it would be better not to carry those debts into retirement. Since your income is likely to be lower after retirement, you might find yourself unable to pay off your debts.
To get a handle on your debts, add up everything you owe (from unsecured debt like credits cards to your car loan and mortgage). Then see how much you can realistically pay towards each debt every month and how long it will take you to clear them. If it’s likely to take a very long time (10-15 years), you might benefit from debt consolidation.
3. Decide the best time to retire
Depending on your situation, you might have access to one or two pensions. These can include a state pension and a private pension scheme that either you or your employer separately pay into. The more contribution schemes you have going, the more money you will be able to save up for retirement, even if you’re on a low income.
You have to be at least 55 years old to start drawing from your pension. But if you’re on a low income and haven’t put much into the pot (or have only one pension), it might be better to wait until later. The longer you wait, the more your money will grow and the higher your pension payment will be.
If you are unsure of your options or would like advice on the best age to retire, check out the Pension Wise initiative. This is a government initiative that provides free guidance to help you make sense of your options.
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