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Friday 15th November 2019

How to make sure you get the retirement you’ve always wanted

In an association with Open Money
Retirement

If your definition of forward planning is deciding what to do on the weekend or where to go on holiday, the idea of planning for your future may seem frightening.

However, whether we like it or not, retirement creeps up fast so it pays to be prepared for it.

Whether you’re 20 years from retirement or just two, getting your finances in order can make a huge difference to your quality of life when you punch out for the last time.

It’s a good idea to clear big credit card and personal loan debts before you retire as there is a good chance your income will drop when you finish work.

Depending on your national insurance contributions, you’ll currently receive up to £8,500 a year, or £164.35 a week, from the state pension.

But the big question is: how are you meant to know how much you need to save?

But that isn’t enough for most people to live on, so make sure you’re saving enough into a workplace or personal pension while you can.

But the big question is: how are you meant to know how much you need to save?

Everyone’s needs are different, but as a guide the average household needs £26,000 a year to get by in retirement, according to consumer champion Which?

While it’s difficult to predict how much you’ll need exactly, it’s worth making a note of what you expect to spend your money on in retirement.

That means estimating how much you will need to cover energy bills, food, clothing, the cost of running a car, holidays and all of the other things you expect you will need money for.

Then you need to work out whether your pension is on track to give you the income you need to cover these costs.

Whether you’re 20 years from retirement or just two, getting your finances in order can make a huge difference to your quality of life.

The Money Advice Service has a handy pension calculator on its website that shows you how much your pension is likely to be worth when you retire, based on how big your pot is right now and how much you pay in each month.

If the number it throws out is lower than you expected then you will need to consider how you can you need to start saving more. Again, the calculator will give you a rough idea of how much extra you’ll need to save each month.

Another way to potentially turbocharge your pension pot is by changing your investments.

Many of the default investment options your pension provider puts you into offer pretty average performance, according to data provider Defaqto, so it’s worth checking with them if they can offer better funds.

As a rule of thumb, people in their 30s and 40s often investment the bulk of their pots in equities, or shares, to achieve maximum growth, before switching gradually into lower-risk investments the closer you get to retirement.

Making just a few small changes now could make all of the difference in your later years.

But again, not everyone is the same, so it pays to do some research. If the thought of picking your own investments fills you with dread, seek out professional financial advice. A good adviser will recommend investments based on your financial goals and how much risk you are willing to take.

If you have a number of different pensions from various jobs, you might also want to consider opening a so-called Self-invested Personal Pension (SIPP) and merging them all into one. This allows you to keep track and manage your investments more easily and it may also reduce the fees you pay.

But before transferring your pension, check that your pension provider won’t charge you a penalty fee to do so. If they do, then you need to weigh up whether it’s worth it.

Above all, don’t bury your head in the sand. If you feel like your pension savings are not where you want them to be, think about how you can boost your pot.

Making just a few small changes now could make all of the difference in your later years. So, don’t wait around.

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Hayley Millhouse

Hayley Millhouse

Head of advisory services for Open Money, Hayley champions making advice affordable and accessible for everyone.

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