- Savings rates are at record lows
- You're going to have work longer before you can afford to retire
- The State pension is unlikely to meet your retirement expectations, therefore…
- Investing for the long term offers better ways to increase your pension pot
- Avoid high fees as they devour the amount of money you'll get back
- Be smart and start investing at a fair price as early as you can
The need to save early and regularly has never been more important. Retirement ages are increasing and there is a growing realisation that we'll have to work longer to retire comfortably.
Whilst the State pension will provide some support, on its own it's unlikely to meet the standard of living that many people are expecting to have in retirement. That's why putting savings plans in place as early as possible will give you more flexibility around your retirement planning.
No risk, no reward (well, almost)
While putting cash in a bank or building society is risk-free (well, at least up to £85,000 per account), interest rates on savings accounts are at historic lows.
If we say that a bank account is paying 1% per annum interest (which is top end of what's available) then that would mean someone saving £10,000 would earn just £100 interest over the year. To put that in context, a TV license costs £145.50 a year!
The alternative to saving is to speak to a financial adviser about investing in stocks and shares. Historically, stock market returns are higher than cash in the bank but they carry more risk. Crucially, the actual amount you get back depends on the level of charges you incur.
Before you start investing…
The biggest challenge for people starting to save is simply having enough spare cash to put aside. The most important first steps for anyone considering saving are:
- Make sure whatever debts you have, whether mortgage or unsecured such as credit cards or personal loans, are manageable. The average level of unsecured debt for each UK household is now almost £15,000.
- Have a "rainy-day" fund that will cover any unsuspected events, such as illness or unemployment. Put aside at least 3 months' worth of outgoings to be on the safe side.
These are short-term goals. Once they've been reached then it's time to start thinking about longer term saving and investment funds.
What options do you have for investing?
With the introduction of auto-enrolment in 2015 anyone can join their company pension scheme with their employer also contributing. Eventually, combined contributions will reach 8% of your salary. It's like getting additional pay from your employer and putting it straight into your retirement fund!
For those with existing pensions or who are self-employed then it's important to ensure you are making the most of the tax benefits that pensions also offer.
The other efficient savings plan people should consider is the Individual Savings Account (ISA) which, like a pension, has various tax benefits attached to it.
Our view is that a combination of pensions and ISAs are essential starting points for anyone serious about saving for their retirement.
Key questions breakdown
Investing can seem like a stressful, jargon-filled, confusing process, so to help you out here's the key things you really need to consider before ploughing any money into investment funds.
- Think long-term. Can you afford to leave this money alone for at least 5 years?
- Would the idea of looking at the value of your investments value and seeing it was less than you had put in, make you scream out loud?
- Are you comfortable making your own investment decisions?
- Spend as little as possible on fees, charges and commissions
For more advice speak to one of our dedicated financial advisers. evestor has been created to help people from all walks of life make the right choices on their savings journey. We won't recommend you do something that isn't in your best interests and we will make sure you always keep as much of your hard-earned money as possible.