Coronavirus: Martin Lewis advises on pension savings
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Pension saving is often viewed as vital for those progressing towards their retirement goals. With the State Pension increasingly viewed as a safety net, it will be the contributions a person makes to their workplace pension and other arrangements which are likely to count most. Britons in their 40s and 50s are most likely to be thinking about their retirement as they turn the corner into the home straight of working life.
As such, they will need to be thinking about what they want most out of their retirement, however close or far it currently seems.
Dan Lane, Senior Analyst at Freetrade, provided further insight into pension saving and offered his top tips.
He said: “Financial yardsticks are useful to give us an idea of how well we’re preparing for the future. But it’s important to remember retirement isn’t a ‘one size fits all’ situation.
“When you want to retire and how you plans to live during retirement could markedly different from the benchmark.
“So be sure to think holistically about what you want from a retirement lifestyle too.
“Measuring that against what your pension pot looks like might mean you have to compromise on a few things or make a conscious effort to boost your investing habits now.”
Mr Lane highlighted that when one reaches their 40s and 50s there may be many life events and challenges which are necessary to tackle.
These are likely to tackle one’s perceptions of retirement, what one hopes to get out of their later years, and most of all, what is achievable.
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One key task many people will have before finally settling down in retirement is paying off a mortgage, and Mr Lane stated 25 percent tax-free cash can often be used to meet this goal.
But once this is dealt with, people are much more likely to radically reduce their outgoings per month.
This could mean individuals have far more free cash at their disposal.
Overall, though, considering this particular point, Mr Lane recommended a pension pot twice a person’s salary at age 40, and four times the value of an annual salary at age 50.
Those who are starting their pension goals in their 40s, may be hard pushed and could have to “compromise” to reach a sizeable pension pot, Mr Lane said.
However, the figures a person ultimately chooses are based on what they can realistically achieve, as well as what they hope.
Reaching a financial goal across a shorter period of time may mean accelerating the actions one takes.
This could mean looking at a higher risk profile with investments if one is determined to reach a higher return.
But individuals should also be fully aware of the kind of risk this action may carry with it.
Mr Lane continued: “Try not to get sucked into taking enormous risk through fear of an underfunded pension pot.
“Be conscious that a situation like this might mean considering a greater weighting to equities, but keep it within your comfort limits.”
Retirement, in addition, does not have to happen all at once, and people of this age group may be thinking about how they can phase out of work.
Dropping down to part-time work, reducing hours slightly, or turning a hobby into a profession could all be areas which Britons may wish to pursue.
Finally, for those who have left saving slightly later and are embarking upon the task in their 50s, it does not have to be too late.
Mr Lane highlighted the idea of short-term investments, which can benefit from the addition of tax relief and workplace contributions.
He added: “Starting a pension in your 50s will obviously not benefit from the value time can add to your investments.
“Making the most of those pension benefits like tax relief can make sense the closer you come to actually using them. That will be helpful for a lot of pension savers in their 50s.”
But finally, individuals should always bear in mind that pension investments are somewhat inflexible by nature.
This means Britons should always ensure they have money they can access while putting funds into their pension pot.
Most experts suggest having three to six months worth of savings in easy access in case the worst happens.
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