We all know that we should save for the future, and yet it’s so easy to put it off for another day.
Initially the reason is that retirement seems such a long way off. However, according to Mary Waring, independent financial adviser and author of ‘The Wealthy Woman’ as time marches on, the reason we don't address it is often because we’re worried we don't have enough money, and don't really want to face up to the reality. So sometimes we prefer not to know.
So what are the options for when we retire?
1. Rely on the state
Mary has met many women who tell her they’re going to rely on the state when they retire. However, this soon changes when they hear that at the minute the state pension is £5,727.80 per year - a measly £477 per month. After paying all utilities (gas, electric, water, council tax etc) and food, that’s going to leave very little left.
It’s enough to keep you off the breadline, which is all it was ever intended to do. But who wants to live just above the breadline after a lifetime of hard work?
2. Rely on your husband or partner
This is a common plan, but you need to check that the pension pot does infact have enough money in it for both of you. In many cases there is not enough to keep one person in comfort, let alone two.
3. Rely on an inheritance
Not a great idea when you consider you have no idea at what age you will receive your inheritance. Your parents could live to their mid 90s and beyond and you could be well past your planned retirement age at this stage.
Also, inheritance tax kicks in at 40% on the value of any estate over £325,000, and this will reduce your inheritance significantly.
Another issue to consider is that, in the future, your parents may need long term care. And the value of their estate may be used to pay for it.
4. Rely on your children
Whilst many children would be very willing to help their parents, you do have to consider the state of their finances. Depending on their age, they may be saddled with an enormous mortgage and may, themselves, be struggling to find sufficient funds to cover their outgoings. There won’t necessarily be any spare cash to help you.
5. Hope and pray
Hope is not a strategy. If you have this as your plan and realise when you get to retirement age that the plan hasn’t worked, it’s then too late to do anything about it.
It’s much better to have a separate plan and then, if the universe somehow gives you all you need when you retire, you’re going to be feeling very comfortable indeed.
6. Do it yourself
The most sensible option is to take responsibility yourself and take whatever action is necessary to save sufficient funds.
If you retire in your mid 60s you will probably live for another 20-30 years. So, start planning as early as possible so you can enjoy your retirement years doing all the things you love to do.
Here’s how to start:
1) Consider a cash ISA. If you have never saved before this will help you set up a savings habit. However the interest rate is very small so this option is purely to help you get into the habit of saving rather than to be used a long term plan.
2) Once you are comfortable with how much you can save each month start looking at a stocks and shares ISA, which has the potential for greater growth than a cash account.
3) When you have used your annual ISA allowance (currently £11,520 each year) consider investing in a pension plan. There are significant tax benefits to investing in a pension plan. The limits as to how and when you can draw the funds are to ensure that money is actually available for your retirement rather than for use as general savings.
By putting a financial plan in place, as soon as you can - even if it’s later than is ideal - you will help secure your retirement years and ensure you’ll be able to enjoy them, rather than scrimping at every turn or asking friends and family for hand-outs.
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