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Is pension planning before you are forty absolutely necessary? Well, yes it is, and despite the fact that retirement still seems an age away, you can make a difference to your future financial security by planning early. Luckily, having time on your side means that you can do lots of research and compare all of your options thoroughly before committing to a scheme; you can decide if you want to choose your own investments and compare the fees too. Top Tips for Pension Planning Early Save as Much as You Can Afford This is a tough one to consider when you are young. There are so many other things you may want to be spending your hard earned cash on, but bear in mind that any money you put away today should be worth at least double what it would be worth if you invested it in 20 years time. Here are the figures: Investing £1,000 at age 20 at a growth rate of 5% a year would grow to £7,350 by the time you are 60. The same £1000 invested at age 40 would only be worth £2700 by the time you reached 60. Saving as much as you can early is also useful if you plan to have a break in your career; many people do this when they start a family. You don’t need to worry too much about this break if you started saving early. You can relax in the knowledge that you have already done much of the saving. Know the Stock Market Savings accounts these days are not particularly lucrative. They might feel like the safe option but with savings rates below 1%, it is not really a viable option for preparing a pension pot. While the stock market can seem like a minefield to those not in the know, the general consensus is that the rates of increase generally beat inflation and grow your cash much quicker over time. Try to learn a little about how the market works and you will have more faith in investing this way. Top Up with a Pay Rise Pay rises are lovely and, while we are not saying you shouldn’t enjoy them, we are saying that allocating a percentage of the increase you get should be part of your pension planning. You won’t miss the extra cash you are investing because you actually never had it. Not only that, but it will help you reach your retirement goals sooner. Know What Your Company Provides Currently there is a rule that stipulates that employees and their employers must contribute 8% to a pension. The employer is required to put in 5% and the employer 3%. This contribution comes with tax relief which makes it even more useful. Check what your company provides as many employers offer more than the minimum top up which is a great help when it comes to pension planning. You can opt out of this scheme, but this is not advisable. Instead, investigate where your company scheme invests. Most employ a strategy that comes in a low to medium risk, but if you want to take more risk and try to make your money increase at a quicker rate, talk to your company and there will be options for you to do this. Don’t Touch It Accessing your pension can be a tempting prospect. Perhaps you think you can do better with the investment but in truth, is it not better to leave it to the experts? You run the risk of panic buying and selling and missing the longer term more prosperous options, while those trained in this field know exactly how to work it. Our advice is to check your returns and be aware of what is happening with regards to your cash but otherwise just let it do its thing. When considering pension planning it is best to start early. Take the tips above on board, talk to the experts and get saving for your golden years. You will thank yourself in the long run. Author Plate Claire Novakovic is the go-to expert for those who need advice on pension planning and other related issues. As a Chartered Financial Advisor, she is the inhouse pension expert for Accudo Investments. Offering comprehensive independent financial advice tailored to each individual’s needs, Accudo Investments provides effective portfolio management and tax strategies to meet the needs identified.
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