Never too early to think about retirement
Posted on 27. Aug, 2009 by admin in Personal Finance
Recent shows people may be hiding their heads in the sand over financial security for retirement
Stories have been raging in the media for years now about the pensions crisis, ageing work forces and the skills gap. So much so, that you might think that workers are at panic stations, worried about how they are going to save enough money to support themselves in their old age. With increased life spans, people are regularly living into their 80s and 90s and will have to support themselves through a retirement that could last 30 years.
But research has shown that the UK is a nation of financial ostriches, prepared to hide their heads in the sand rather than face up to their monetary problems. Many are still living in blissful ignorance. Take retirement ages many people still think they will retire before the age of 60, despite many UK companies hiking the retirement age to 65+ and even the government planning on raising retirement age for both men and women from 65 to 68 between 2024 and 2046.
It’s time that the bubble burst and reality was faced – pie in the sky about how well off you think you are is all well and good, but if it won’t buy you a house or put food on the table when you are a pensioner, you’ll be in trouble.
The fact is that to maintain an income of £25,000 per year throughout your retirement (not taking future inflation into account), you will need to save half a million pounds. The full state pension is currently £4,953 a year (£95.25 a week) for a single person and £7,919.60 (£153.30 a week) for a couple.
So, what should the British public be doing to build their resources and see them though, what could be, a very long retirement? Of course what you should be doing depends on your age, current financial status etc. but there are some fundamental guidelines that everyone should follow:
- this is where most people go wrong in their financial planning. It is amazing how purchasing cheaper brands of the same food or choosing a cheaper restaurant to eat in can make a big difference in the long run. The key is to write down all your expenditure. From here, you’ll be able to work out where you can cut back spending and shop around for cheaper versions of the same thing.
- putting aside a small sum each month into a high interest savings account is recommended. Just £50 a month can turn into over £3,000 in 5 years and in over 10 years, could be worth over £8,000. Admittedly these are hard to come by these days but even with what’s on offer right now is better than leaving it where it is, and things will improve. (This is especially if that’s under a mattress! Tempting as this may be following banking failures and bailouts the fact is that your money is even safer now with these government guarantees in place – more on this in a future article.)
- the mission to save half a million pounds for a comfortable retirement should start as soon as it is financially feasible. That £50 a month savings, if put in a pension plan, could turn into over £75,000!
- everyone finds it hard to save when they have debt hanging over their head but this shouldn’t stop people from taking control of it. If you have a credit card and don’t pay off the balance every month, think about switching to one with 0% APR – some now offer this for the life of the balance which could save you around £150 a year on a balance on £1000 on an average APR. If possible, try to stick to cash or debit card purchases, rather than credit cards, to avoid repeating and increasing your debt
- insuring against loss of income should always be considered. For as little as £5-10 a month, you can secure a proportion of your income. Life insurance should also be considered, particularly for those with children.
Practising good financial management now is key to a financially secure future. No matter how bad a situation you’re in, it is never too late to start thinking about improving your financial well-being. Don’t put your heads in the sand – any problems will only come back and hit you harder in years to come.
