In your early twenties it is hard to imagine that day when you can stop working for good. However, pensions have been big news recently and regardless of your age you should think about what kind of financial situation you want to be in come retirement.
How to go about setting up a pension
Setting up a pension will require some research as there are many different types of pension options. You should look at whether your company has a pension and also investigate pension schemes offered by outside agencies. In addition, don’t be afraid to go to a financial advisor for advice on which pension options would best suit you. Finally, think about investments if you are young. Buying property to let can be just as effective over a long period as paying additional pension contributions.
Why is it important?
As you grow older, you will inevitably reach an age where your health will prevent you from working. When you are no longer able to work you will need an income and this is where pensions come into play. They can provide you with income security during retirement and allow you to continue living a comfortable life. Having an adequate pension pot will be essential. Pensions also benefit the economy in that they allow people to continue contributing by purchasing products.
Many employers now offer a workplace pension that is open to all employees (sometimes after a specific period of working there). There are a number of different types of pension that they might offer, so you might want to research which one will provide you with the best deal. Possible pension schemes include: defined benefit schemes which can be calculated on your final salary or an average of what you have earned over your entire career. Alternatively, they could offer defined contribution schemes, such as money purchase schemes, group personal pension plans and group stakeholder pension schemes.
There is also the option of private pensions which can be purchased from insurance companies, investment organisations and banks. Policy holders contribute money, it is invested by these companies and a fund is built up. When you reach an agreed age, you are able withdraw a certain percentage of the fund and invest the rest. The outcome of these pensions schemes depend on the amount invested, how well investments perform etc.
How much you should be saving
You should start thinking about how much money you are going to need (remember you may have paid off borrowings by this time). There are a number of questions you will need to ask yourself in order to give yourself a rough idea of how much money will need to save. For example, when are you hoping to retire? How much have you already saved? How much do you want to have during retirement? What benefits are you going to receive through social security? There are some useful pension calculators available on the internet which can help you calculate this. When you have decided on plan you will need to stick to it!
Rising retirement ages
Retirement ages obviously depend on where you live, but it is true that in most countries the retirement ages are going up, up, up! Due to the fact that most people will be working way past previous retirement ages, it is important that you have your pension plans in place.
What you could face if you don’t have a pension
Facing old age without any savings is a grim prospect. The likelihood is that you will have to work longer, or if ill health prevents it, have to endure a worse quality of life. Without a pension you could face poverty in old age, so having a plan is vital.
Hannah Wilkie has experience in the field of retirement planning and likes to get her clients to start saving early. If putting money into a pension plan is too inflexible at this point in time then she recommends you search around for the best ISA rates so you get the best returns on your money but you are also less tempted to spend it than if it was in a regular savings account.