Top tips for a carefree retirement

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A robust and predictable income in retirement is a big concern. We need to know how to generate enough cash to maintain our lifestyle without exposing our assets to too much risk.

After a lifetime of working and saving, retirement is the light at the end of the tunnel. Most of us think of it as a time of rest and relaxation, when we enjoy the fruits of our labour. We envision a steady source of income without the need to go to work each day.

It’s a great vision, but generating income without going to work tends to be a murky concept during our working years. Most of us know what we want, but aren’t totally sure how it will happen.

Not only should investors consider saving for retirement as early as possible, but also think about how to invest when in retirement. Compounding (where returns are reinvested to grow additional capital or income) can be a useful strategy for making the most of money that you don’t need for living expenses. The sooner investors begin investing for their future needs, the greater wealth they could accumulate.

Start saving, keep saving, and stick to your goals

If you are already saving, whether for retirement of another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time the money has to grow. Make saving for retirement a priority. Devise a plan, stick to it and set goals. Remember, it’s never too early or too late to start saving.

Understand your retirement needs

Retirement is expensive. Experts estimate that you will need about 70 per cent of your pre-retirement income – lower earners, 90 per cent or more – to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

Contribute to your employer’s retirement savings plan - If your employer offers a company pension, sign up and contribute all you can. Your taxes will be lower, and your company may also contribute. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Ask for an individual benefit statement to see what your benefit is worth. In 2016, all UK companies regardless of size will have to offer a pension to their employees. If you opt out you could be missing out on ‘free money’.

Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or company pension plan is invested. Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals and financial circumstances. Financial security and knowledge go hand in hand. If you are unsure about your own financial needs please speak to a financial adviser.

Put money into an individual savings account

You can put up to £11,520 in the current 2013/14 tax year into a stocks and shares individual savings account (ISA). If you invest your full ISA allowance each year, it is possible to build up a sizeable tax efficient savings pot in addition to the tax relief you benefit from by making contributions to a pension fund.

Ask questions

While these tips are meant to point you in the right direction, you’ll need more information. Ask questions and make sure you understand the answers. Get practical independent advice and act now.