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Retirement Planning- Start Early


Retirement Planning-

No one likes running out of money, least of all when they are retired from work and no longer are earning a salary. Although we do of course have social security which (we hope) will provide a basic income, this barely offers enough money to cover the basic, essential spending.

Most people will need some other form of private or occupational pension arrangement to help supplement the income they receive from the Government.

Retirement PlanningIf you have a final salary pension then you don’t have as much to worry about as you will receive an income based upon the salary you received when you retired, which may also be indexed to Inflation. Your income should start at a healthy level in comparison to what you used to earn and will also keep up with future rises in inflation.

However the majority of pensioners are not this fortunate and will have been saving into a defined contribution pension plan. This means their income is based upon the age at which they retire along with the amount of money they have managed to accumulate. Whichever category you fall into with regard to pension income, it is wise to begin planning your retirement finances as early as possible.

Follow these steps which will help you on your way….

Get an Early Start on Your Retirement Planning

This is crucial in ensuring you get a decent level of income in retirement. In short, the sooner you start, the less you will have to put away each month in order to get the same level of savings for retirement. Ideally you want to start pension saving in your twenties, although this is proving increasingly difficult. But even if you can only put aside a few dollars a month those dollars will have much longer to grow and will provide you with the equivaleent of much larger contributions later on. It also starts a good habit of saving so you shouldn’t make excuses just because “it isn’t much” or “you need every cent to pay the mortgage.”

If your employer has a pension scheme then you should join it because you will benefit from the contributions they make each month. The employer normally matches whatever the employee puts into up to a specified maximum. However, if you don’t join the scheme you won’t be able to benefit from these contributions.

Save Money Yourself

Although pension saving is important, you should also have your own savings account. This can be either a conventional savings account or an ISA (in the UK) which will allow you to put money away tax free, subject to annual limits. Saving can be hard when wages are stagnant and prices are rising but whenever you manage to come into some money, perhaps earning a bonus, overtime or through inheritance then it is prudent to keep that money as savings rather than splurge it on a luxury purchase.

Pay Off Debts Before You Retire

It makes sense to pay down debts before you retire because once you are retired you will find it harder (if not impossible) to reduce the amount of money you owe after you retire and are on a fixed income. You should definately pay off your mortgage before retirement, as this is normally the biggest debt of all. Another reason why it is beneficial to pay off debt is the rate of interest that you will be charged each year.

It is also worth noting of course that your financial security in retirement is also dependent on factors outside of your control. These include how long you live for and the rate at which prices rise (or fall) during your retirement (which impacts on your spending power). However you can help yourself by being prudent when working, ensuring you get the best annuity rates and planning your retirement well in advance of you actually retiring.

Photo credits:  by Highways Agency Retired couple

See Also:

Financial Planning and Budgeting

The Downside of Using a Financial Planner

Why Do I Need a Long Term Care Insurance Policy?

Life Insurance Over 50

How To Retire Comfortably Without Guilt