How and when to Start Saving for your Retirement

Image courtesy of ptmoney.com
Image courtesy of ptmoney.com

People do seem to always go on about saving for retirement but when you are young it can seem rather silly. It can be hard to understand how putting away just a small percentage of your earnings each month will add up to enough to give you a decent retirement income and also if you are paying into the government pension you may think that will be enough. However, it is wise to look at it in more detail.

Firstly consider at what age you think you will retire, then consider how long you would like to live. Think about how much money you need to live at the moment and how much in a lump sum you would need to accumulate to cover your retirement and you will see how much of a problem it could potentially be. Of course, you will not need to gather all that money. If you start investing early, then the pot will grow as the value of the investment rises, which, if you invest wisely will happen faster than inflation rises. If this happens you should have enough money to pay for a retirement income as long as you pay it into regularly and for long enough.

This should be enough to demonstrate that it is never too early to start paying into a pension scheme. Whether you choose a work pension, a private pension or an alternative type of investment that will pay you a retirement income, you need to start doing it as soon as possible. Then you need to look at it regularly to see whether it is performing well enough to give you the income that you need. Many people will use a financial advisor to help them with this.

Researching pension schemes can be difficult. If you have a work scheme then it is usually wise to take it up. As the employer pays in as well as you and you get a tax break on the money put in you can gain a lot by doing it this way. A personal pension will not accumulate as quickly as it will only be you paying in. Of course, like all investments there is a risk either of the financial institution going out of business of the investment not giving the return that you were expecting. However, this does not happen often, particularly the first scenario but you could always spread your payments across two companies just to be sure. There are comparison sites you can use to look at pensions but as it is such an important decision it could be wise to use a financial advisor. Although you will have to pay for their services, they will have a knowledge of everything that is available and be able to explain the differences and risks to you.

It is worth thinking about how much you can afford to invest each month as well as how much you think you will need. Obviously the more you invest, the better off you will be in retirement, but you do not want to struggle to make ends meet in the meantime. It can be a difficult decision to make, particularly as you will not know how your career will change in the future and whether your expenses will go up or down. It is worth remembering though, that you can change how much you pay in, but the more you pay in initially the longer it has to grow in value.

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Rachel Henderson is a professional freelance writer from the UK. She writes on many subjects but specialises in personal finance. As well as contributing to various blogs and websites she has her own website tracking her own money making process http://www.turnonepoundintoonemillion.com and sells her books through http://www.bowbridgepublishing.com.

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