Common Mistakes when Planning for Retirement

 Retirement Planning, Savings Advice  No Responses »
Feb 212012
 
Planning for retirement can be a minefield for inexperienced minds – one wrong move could cost you the nest egg you’ve spent your life working for.
Today we give you some top tips on how to avoid the traps and pitfalls of planning for your retirement.
Retire based on your bank balance instead of your birthday.
Many people spend their lives counting down to the day when they retire – when really they should be counting the cash in their pocket. Some people make the mistake of retiring almost penniless at 65 despite fluttering away most of their cash in their forties and fifties. Meanwhile, though most people save for their retirement few do it using a great deal of commence sense or commence with a clear understanding of the end goal. They do it with a random series of cash injections and one off payments and they often end up far from where they need to be. Check your state pension forecast  to see how much you could look forward to in your pension pot.
If asked when you’ll retire, your answer should be an amount, not a year. Plan towards that amount and retire when you reach your goal.
Watch out for risky decisions
In the early years of your pension when you’re in your 20s and 30s, it is acceptable to take greater risks in the hope of receiving greater returns. If you lose money, you have decades to make it up. This safety net no longer applies as you get closer to retirement and you can’t afford to operate at the same risk level.
As you age it’s wise to ditch potentially dodgy investments. If the financial crisis has taught us anything, it’s that you need to learn to manage your risks as avoiding large losses is as much a part of investing as making gains. As you get older a host of new risks come into play. A serious condition, redundancy or divorced could all significantly impact your emotional and financial well-being. The goal is to consistently manage your risks in order to increase your odds of a rewarding retirement.
Avoid retiring with too much debt.
An increasing number of people are entering retirement age without pension, savings in the bank and a big mortgage. Some even have credit card debt or unpaid car loans. Work is not an option for many beyond a certain age so it could be 30-year retirement with all these obligations and a growing family to feed. Having debt increases risk and reduces cash flow. You should aim to retire debt-free and with income at your disposal. If you retire with debt, you will spend years paying for past purchases instead of using your income to live the life you’ve dreamed of.
Don’t go it alone seek professional advice.
Preparing for retirement is a risky business and going without a competent adviser at this stage could be a big mistake. However, there are online services such as MoneyVista, which can help make the process easier and arm you with all the info you need before visiting an advisor.
Plan Plan Plan.
The last and most valuable tip of all when it comes to planning for your retirement is to plan like your life depends on it. There is an array of tools – such as the savings calculator, which can help you figure out where you need to be in terms of your finances. So keep doing your research – as the saying goes “knowledge is power”.
 Posted by admin at 11:25 am  Tagged with: , , ,

Tidy up your pension funds

 Retirement Planning  No Responses »
Sep 142011
 

Billions of pounds of your money is wasting away in pensions from old jobs, bogged down by poor investment performance and high charges.

Most of us have at least one small pension pot gathering dust.

The average British worker gets through several jobs in their lifetime, potentially saving into a new pension with each one.

It can be a nightmare to keep track of all of them, particularly if relatively small amounts of money are involved.

But it’s essential to make every penny count towards your retirement.

The first step is to figure out what you have got.

If you’re efficient and informed all your old employers of changes of address then you should be receiving annual statements for all your pensions.

If not then you will need to do some legwork.

Phone your old employers and ask for the name of the pension administrator – the company which runs the pension.

You may well have to provide some personal details such as your national insurance number, old payroll number or policy number. This information will be on your old pay slips.

The firm should give you crucial information including: what your pension is worth; how much it has grown; your contributions and the funds you’re invested in.

If you need help tracking down old pensions – whether work or a personal pension – try the free Pension Tracing Service www.direct.gov.uk) which has access to information on a huge number of pension schemes and can help you.

If you were in a workplace pension, you can also try Companies House at www.companieshouse.gov.uk a quick search here can tell you if a company still exists and provide you with contact details.

If your pension is a final salary scheme, which provides a guaranteed pay-out based on salary and length of service – then you’re usually better off leaving the money where it is.

Many pensions come with guaranteed annuity rates — these will often pay a much higher income when you retire than you could ever get elsewhere.

Others have guaranteed minimum growth rates, something else that is worth hanging on to.

Some old-style pensions will charge a penalty of 10??per cent or more if you switch, meaning you may be better off staying put. Check if there is a charge by asking the pensions administrator for the transfer value.

This will be different to the current value of your pension pot and will reveal the amount which will actually be transferred to the new pension.

Even if you are in a standard stock market-linked scheme, called defined contribution, and have no guarantees, it may well be worth staying put if the investments are growing each year.

You may be able to switch which funds you are in.

However, if the choice is limited, and the fund is performing poorly, you’ll probably be  better switching the money to a new pension.

Moving all your pensions into once place can make sense — not least because it will be less of a headache to manage.

If are not interested in managing your own investments you should put your pension in a cheap pension called a stakeholder

Stakeholders don’t charge savers for transferring their money in or leaving. They also have to accept smaller amounts — the minimum is £20.

Alternatively, those who want greater control and choice of funds could opt for a low-cost Self Invested Personal Pension.

 Posted by admin at 4:33 pm  Tagged with: , ,

Pension saving tips

 Retirement Planning  No Responses »
Sep 142011
 

Saving money in a pension is a tricky balancing act in these days of austerity.  Sure there is always something else that you need to put your money instead of a pension, but remember we all hope to have a long and happy retirement …so a good pension is likely to be a balancing act that takes into account your health, ambitions and finances. The following tips should help you to balance work and leisure.

The first thing to do is work out how much pension you already have. You’ll be able to get a state pension forecast from the Government and you can also get a forecast for any occupational pensions you have.

Think about how your life expectancy will affect you when you retire. The rule of thumb is that life expectancy is increasing by between two and two-and-a-half years every decade at present.

Unless you have a final salary pension, you may well need to buy an annuity with your pension pot. You can find out roughly how much your pension pot will buy you by using an online annuity calculator such as

Do not underestimate the amount you need to salt away to build a decent pension pot. A 35-year-old will need to save 32pc of their wage in order to receive a retirement income of two thirds of their salary at 65.

Plan an exit strategy. Many retired people want to work part time with the same employers, but there is no legally enshrined process for employers to follow as there is in the case of parents with young children.

Instead, it’s down to negotiation. Ros Altmann, at Saga, suggested that people approaching retirement began talking with their employers, discussing the pros and cons of flexible working. Be realistic about whether you will be able to work in your industry and, if not, start thinking of other skills you might be able to use to generate an income.

 Posted by admin at 4:11 pm  Tagged with: ,

Don’t overestimate your company pension

 Retirement Planning  No Responses »
Sep 122011
 
The Association of Consulting Actuaries (ACA) has found that one in three larger companies will reduce their contributions in response to new rules pushing them to offer pensions for all staff as a result of Government inspired pensions proposal that goes live in 2012.

The level of contributions made by your employer (and yourself) is the key to a decent-size pension.

If you are in a final salary scheme, your pension will be calculated on contributions based on around 22pc of your salary. For workers in defined contribution (DC) schemes (the pension of choice for companies that no longer offer generous final salary schemes) the average combined employer (8pc) and employee contribution rates (4pc) is around 12pc.

Yet this could fall to just 8pc if companies decide to follow rules for the new pension scheme, the National Employment Savings Trust, which only require companies to invest 3pc of an employee’s salary.

The ACA’s findings coincide with new research that reinforces the fragile nature of DC schemes compared to the final salary schemes they have replaced.

A 65 year-old with a £100,000 pension pot retiring today would be £1,600 a year worse off retiring now than if he or she retired three years ago….so workers should be wary and calculate their pension.

 Posted by admin at 9:17 pm  Tagged with: ,

Shop around for an annuity

 Retirement Planning  No Responses »
Sep 122011
 
Evidence suggests that you can boost your pension income by up to a third if you shop around,  but , two out of three people don’t shop around for an annuity

Insurers are obliged to tell customers they can buy an annuity from a different provider – known technically as exercising the “open market option” – but many bury this information in the small print when they send out their retirement packs.  You should also not be swayed by the headline figures, that this is the quickest and best way to turn your fund into a pension income.

If you don’t feel confident shopping around, talk to an annuity adviser. But while some advisers will take a commission, most now charge a fee. This can make advice prohibitively expensive for those with relatively small pension pots.

Tell the truth about your health

An estimated 50% of people could get a higher income in retirement if they mention 3 key points to their annuity provider: are they on any medication, have they ever been admitted to hospital and do they drink or smoke?

Answer yes to any of these and you’ll probably qualify for an enhanced pension income. You don’t have to be at death’s door to get a better rate; even a minor condition that is being managed with medication or diet can make a difference.

Get the right annuity for you 

There are different types of annuity. Some will pay a pension to your spouse on death, and others will inflation-proof your income. They are more expensive, though.

The most risky options here are income drawdown plans, where your money stays invested and you draw down an income.

A less riskyoption is  with-profits and unitised annuities. These provide a minimum level of income, and, if the underlying investments perform, the income should rise, helping protect your income against inflation. The opposite can also occur, of course.

It’s possible to buy shorter-term annuities, for between three and 10 years. These pay a guaranteed income during the period – there is no investment risk – and people simply buy another annuity at the end of the term.

 Posted by admin at 8:58 pm  Tagged with: ,

Pension Poverty a reality for many

 Retirement Planning  No Responses »
Aug 012011
 

Only 16% of men and 27% of women employed full-time on less than £300 a week are in a pension scheme, said the Office for National Statistics (ONS).

Its latest Pension Trends report said that many people are “stretched” by the cost of living and are unable to save.

Participation in private sector pension schemes is waning, the ONS adds.

In 1997, 52% of male employees and 37% of female employees belonged to a pension scheme in the private sector.

But by 2010, this had fallen to 39% of male employees and 28% of female employees.

Full-time self-employed men are also now far less likely to be in a pension scheme, falling from 64% in 1998-99 to 38% in 2010.

The ONS report comes amid widespread concern about the failure of workers to save enough for their old age, particular among younger age groups.

Earlier this month, a survey by Scottish Widows, which is itself a pension provider, indicated that 59% of those aged over 50 were preparing financially for their retirement, compared with 47% of those aged 30 to 50.

Overall, some 49% of those surveyed in the Scottish Widows report were considered to be not making adequate provision for their retirement – defined as saving at least 12% of earnings a year.

 Posted by admin at 3:11 pm  Tagged with: ,

A State Pension of £140 a week?

 Retirement Planning  No Responses »
Jul 292011
 

 A new flat-rate state pension worth £140 a week moved a step closer today when the Government revealed the results of a consultation with pensions industry.

 

The results of the consultation  gauged support for a single-tier system – worth £140 a week in today’s prices – which does away with means-testing and allows years spent caring, raising children or in self-employment to count towards an individual’s state pension.
 

Whichever route is taken, 12million existing pensioners are not expected to be included in the reforms.

Statisticians at the Department for Work and Pensions have calculated that it will cost £10billion a year to include those retiring between 2011 and 2016 in the reforms. Any changes won’t take place until the next parliament, which starts in 2015.

Former Downing Street adviser Ros Altmann, now director-general of over 50s group Saga, wants the Government to dig deep and make existing pensioners part of its new deal.

She says: ‘I would like to see the Government extend this new system in some way to existing pensioners as well, even if from a later age, so that the political pain of pension reform can be minimised. There are no easy answers, but maintaining the status quo would be a disaster.’
‘A revamped state pension would enable everyone to see that there is a clear foundation for their retirement, and that it pays to save. They can then build on this through their own pension and savings.’
A survey of young people found almost half of those aged between 18 and 34 would save more for their old age if they knew how much state pension they would get.
 Posted by admin at 10:45 am
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