Do you actively monitor your pension fund? Do you know how your pension plans are performing? Recent surveys suggest that at least two thirds of the population neither understand nor routinely monitor their pension plans. Part of the problem is that pension information is often confusing. But if the recent economic crisis has taught us anything, it’s that we need to pay much closer attention to how we are going to finance our futures.
It’s important to remember that pension plan investments are subject to market volatility and can go down as well as up. In a new US survey of baby boomers, born between 1946 and 1964, sixty percent admitted that in the last three years their homes, investments and retirement plans had all lost significant value and as a result they were planning to delay retirement. A quarter of the respondents said they didn’t see how they would ever be able to afford to retire. That concern is not unique to America, and governments worldwide are looking at making changes to pension legislation. France has already increased the retirement age and the UK is planning to follow suit in 2012. So what does this all mean to you?
In order to be able to grow your pension fund so that you can retire and live comfortably in your later years, you need to have a sound retirement savings strategy, routinely monitor your pension arrangements, use an annuity calculator to check what your income might be at retirement, and adjust your savings strategy accordingly. To secure your future, here are a few tips to consider.
Start early. The time to start saving for retirement is the day you enter the workforce. The beauty of compound interest is that the sooner you start the less you have to pay in to achieve the same retirement income. For example, if you were to invest £2,000 a year starting at age twenty-five and continue for eight years, then never invest another pound; you would actually end up with more money by age sixty-five than someone who invested the same amount of money annually, in the same plan, for thirty-two years, but didn’t start investing until age thirty-four.
Have a plan. As a general rule, you should be investing a percentage of your income equal to half your age. That means a twenty-four year old should be saving eleven percent of their income for retirement. It’s a good idea to consult a retirement planning expert to help you determine an investment strategy that will meet your future needs.
If possible, don’t put all your eggs in one basket. If your retirement savings are in a variety of government, occupational or private pension plans and other tax-free investment schemes, then if one plan or investment is not performing well or collapses, your entire retirement fund is not in jeopardy.
Avoid living beyond your means. Ideally, by the time you reach retirement age you want to be debt free. If you want to retire free of financial worries, make it a habit to live below your means. If you can afford a new car every three years, make it last for five or six years instead. Whatever you think you can afford to spend on big ticket items, spend less, and sock that money away in your retirement funds and investments.
And above all else, you should always know how big your pension fund is at any given time. Ensure your future by actively monitoring your retirement savings and regularly check a pension calculator to see what you need to invest to meet your own aspirations.
- Retirement Plan for You Small Business? Choose a SEP IRA (2011taxes.org)
- SEP IRA: the Flexible Retirement Plan (2010tax.org)
How Big Is Your Pension Fund? Tips for the Future by Steve