Navigating the world of pensions can feel like a fairly daunting prospect – time horizons seem distant, the schemes and products available can be complicated, and there may be more immediate priorities competing for potential savings.
One of the key challenges with retirement planning is that saving for retirement is a long process – but thinking about it now can reap significant rewards.
Here are some top tips as to how you can boost your retirement provision:
Use online tools
The first step to finding out if you are saving enough for your retirement is to find out where you stand today. Log into your online account and make use of the tools on offer.
This is a very simple process – banks are constantly introducing new tools and applications to help manage your money and plan your finances. Explore those, it will be the first step towards you taking control of your retirement savings.
Take advantage of your employer’s pension scheme
Most employers have already set up pension schemes for their employees and, even if the employee is not contributing, the employer will pay in a minimum contribution amount. To incentivise employees to save more, they may also offer a generous matching element. One of the easiest ways to save more is to take advantage of this matching element.
Take some time to understand your employer’s scheme so that you can work out how it can best work with your goals.
Save as early as you can
Saving as much as you can afford early on will have a material impact on your savings when you reach retirement. For example, $1,000 invested as a lump sum at age 25, growing at 5% a year, will be worth over $7,000 by the time you are 60. In contrast $1,000 invested at 40 will be worth just $2,800 by time you are 60*.
This is a particularly important consideration if you plan to take a career break, to start a family, for example.
Top up with every pay rise
Getting in the habit of saving for your pension is the first step, but taking a proactive approach is important in the long run too. Each time you get a pay rise, for example, make sure you consider increasing your pension contributions too.
You did not have the cash before so it may be that you will not miss it if you use some of the increase towards your savings.
Understand how to invest
Take this as an opportunity to explore and understand the investment options open to you. Cash may feel safe, but with savings rates currently close to zero, you will lose more due to inflation. Stock markets, meanwhile, can seem unpredictable, but they tend to beat inflation and grow faster than cash over time.
Most company schemes have a default investment option that will be acceptable for most plan members. In many instances, the default option will be a ‘lifestyle’ fund, which automatically invests based on the level of risk appropriate for your age bracket, de-risking as you get older. If you prefer to take a more active role in managing your contributions, you can normally self-select investments from an approved fund range covering a wide range of investment options.
Leave it alone
Being proactive is one thing, but for some, there is a temptation to constantly switch between investments. In many instances, this does not improve long-term returns. They are also exposed to market risk, potentially placing investment requests at the wrong time.
The best approach is to set your investment strategy based on your risk appetite, decide how much you plan to save and then review it a couple of times a year.
The key thing to remember is that everyone’s retirement journey is different and day to day life regularly gets in the way of focusing on the future.
However, by starting the process and making some decisions now – drawing on these top tips – you may find that it is not as daunting as you first thought and you will be one step closer to reaching your retirement goals.
*Past performance is not a reliable indicator of future results. Investment may not be suitable for everybody and potential investors should take their own independent advice.
