We can’t stress enough how important it is to plan ahead for your retirement.
Retirement planning is a critical part of your future and financial security and with the average pension requiring upwards of 25 years’ of savings, it is never too early, or late for that matter, to start planning.
What is the difference between a Final Salary (Defined Benefit) and Defined Contribution Pension?
A Final Salary or Defined Benefit Plan is structured in advance, the benefits are pre-defined and rigid. While this sort of policy provides the security of a constant income it cannot be controlled to suit your changing circumstances and requirements. For many the ability to be able to reduce and increase their income can be more important than a set amount and would then opt for a Defined Contribution Pension. There are many pros and cons for each scheme and, by law, any Defined Benefit advice must be performed by a suitably qualified UK adviser.
I can’t afford to save.
The best approach to retirement planning is to start saving as soon as possible to get the most from compound interest. A fund with 40 years to grow is more beneficial than one you create the year before you retire with no time to grow. It’s not what you save it’s when you save and the most important investment you will make will be the first one.
Property is my income, I will probably downsize and receive rent.
The property market can be unpredictable and it’s hard to rely on one single asset to supplement your income. In addition, there can be tax issues and a whole host of other considerations such as maintenance and management. Your property is also illiquid; you can’t sell your garage if you need cash urgently.
Property investment does play an important role in healthy financial planning but it shouldn’t be relied on as the one and only source of retirement income.
The state will provide for me, I’ve paid taxes all my life.
It is highly likely that such a large cost to the government will be cut further as recent rumours include making state pensions means tested and reducing the annual inflationary increase. Despite having made long term contributions, state benefits should really be looked at as a bonus and not form the core fund from which you draw your income.