11 Sep 2018
There are a lot of misunderstandings and wrong information out there surrounding the best ways to save for retirement.
Many people find it a confusing and complicated subject.
They are getting anxious about issues such as whether they should put their money for retirement into a pension, or possibly just a cash ISA or only property. How much money you need to set aside for a comfortable retirement is another hot topic, as are the rules surrounding pension schemes.
Financial services company Aegon has now highlighted pension myths you should not believe.
These myths include:
Lots of people avoid investing in the stock market because of the fear of losing money. That’s why cash ISAs have, until recently, proved more popular than stocks and shares ISAs. While it’s true that cash is ‘safer’ than shares, because it doesn’t go up and down in value very much, that’s not the only measure of safety. If you want to protect your money in real terms, then cash could be said to be one of the least safe options. This is because of inflation.
You can join your workplace pension scheme as soon as you start work, whatever age you are. If you’re under 22, you won’t be automatically enrolled into your workplace pension scheme, but you do have the right to opt-in. And if you earn more than £503 a month, your employer has to contribute too.
Pension contributions can start from as little as £20 per month. This figure may sound a lot on a small budget, but you’d be surprised at how even small savings can make a big difference. Remember, you’ll get tax relief on whatever you put into your workplace pension. This effectively reduces how much Income Tax you pay and boosts what goes into your pension.
You can choose to opt-out of your workplace pension But it's good to get in the habit of regular saving and most pensions providers will allow you to start, stop and increase or decrease your contributions whenever you like.
The full new State pension is just £164.35 per week, and that’s the maximum entitlement. Gaps in your National Insurance record may mean that you get less. A person on the UK average salary of £28,600 now needs to build up a pension pot of over £300,000 to be able to maintain their current lifestyle in retirement. Based on this calculation, it means that the State pension would need to be topped up by £809 per month from private and workplace pensions to hit this goal.
People often think that buy-to-let is the best way to save for retirement, but the danger is that this strategy puts all your eggs in one basket, and that’s a big risk to take with your retirement.
It’s never too late to start a pension. Even at 50, if you’re a high earner, it’s possible to amass around £750,000 in a pension pot by the time you are 67. And, even if you’re on a more modest wage, you could save a significant amount. That said, the earlier you start the better.
If you want to retire on a pension that’s somewhere near two-thirds of your final salary, you should aim to save 15% of your salary each year, with 12% as a minimum. And the earlier you start the better. It’s possible to build a pension late on in life, but the magic of compound interest (where you get interest-on-interest on your money) means you have the best chance of meeting your goals if you start young - preferably as soon as you start your first job.