If you are to enjoy the lifestyle you want and deserve in retirement, careful planning is critically important. Indeed, you do not want to simply make ends meet. After decades of hard work, you want to have a sense of financial freedom, and fill your time with your hobbies, passions and priorities.
But many of us can make mistakes without realizing, that can significantly hit our income in later life. We thought it useful to highlight below a few of the most common pitfalls that you should avoid.
Delaying your pension saving
Starting early is the best thing you can do when it comes to saving for retirement, as you have longer to build up your pension pot and benefit from more compound interest. The earlier you start, the smaller the contributions can be, which makes it more affordable. Even just a small amount can blossom into a much larger sum over time.
Not saving enough
Do you know what your goals are for retirement? Are you saving enough to achieve them?
It can be tempting to just put the bare minimum into your pension, but if you make insufficient contributions as the years pass, you might find you don’t have enough to enjoy the comfortable retirement you deserve.
Opting out of your workplace pension
If you’re not enrolled into your workplace pension, then you are missing out on employer contributions and tax relief, which is effectively free money from two different sources which gets added to your savings.
Relying solely on the state pension
Whilst the State Pension provides a valuable safety net for retirement, it alone won’t be enough to ensure a standard of living you desire in later life. It is therefore really important to make sure you have personal pension savings in place so you can be certain of financial security and a decent quality of life when the time comes.
Dipping into your pension savings before retirement
If you are under financial pressure, it might be tempting to access your pension pot to tide you over. But this can lead to you paying more income tax and losing some of your tax-free allowance, as well as reducing your retirement income in the future.
Instead, you should create a completely separate emergency fund, so you can be prepared if a difficult situation arises, and it won’t have an impact on your future.
Not thinking about pension fees and charges
Different pension providers have their own fee structures, so it is well worth looking for options that are transparent, competitive and don’t erode your savings as the years pass.
Losing track of old pensions
As you move from one job to the next, you can pick up multiple workplace pensions. It is therefore very important to make sure you know where these old pots are; perhaps consolidate them into a single scheme so it is easier for you to manage.
Ignoring pension statements
It is really easy to ignore financial documents when they drop through your letterbox, so make sure you actually read your pension statements and understand what they say.
Not reviewing your investment strategy
Markets go up as well as down, and the level of risk you are exposed to will inevitably change over time as your risk profile changes with your priorities. You should review your investment strategy every year, so adjustments can be made where necessary. This will minimise your risk exposure and capitalise on opportunities for growth.
It is vital you know what is happening with your money and that you are able to make informed decisions about planning for your future. If you have any questions on preparing for retirement, it is well worth speaking with a financial planner.
