When it comes to our financial priorities, pensions often aren’t at the top of our list until we get closer to the age in which we are thinking of retiring and leaving permanent employment. Whilst this is somewhat understandable, not preparing for our pension is a common oversight when it comes to finances and can be of detriment to our financial security throughout our life.
Women, in particular, are often so much worse off in retirement than men, stated the Financial Times. Why? Because they face a perfect storm of challenges. To start with, women typically need more money for their retirement than men, so have a bigger problem to solve when it comes to saving for retirement. To make things worse, women tend to accumulate fewer savings than men in the years before they retire, making the problem even harder to solve.
According to Forbes, Americans are often way behind. In fact, in 2019, almost half of households headed by someone 55 or older had no retirement savings at all, according to the U.S. Government Accountability Office.
Similar patterns are also being seen in the UK. Claro Money’s Mental Health Report has revealed that over a quarter of UK adults (28%) admit to living for the day and letting tomorrow take care of itself when it comes to finances.
To help those who want to understand more about their pensions and take the steps to maximise this, Rachel Harte, Head of Financial Planning at Claro Money, the first financial planning app, has shared five ways to start planning your pension, whatever your age.
Understand your Pension
If retirement is a milestone likely to be years away for you, then the word pension may not be at the front of your mind. However, regardless of how far away retirement may be, it is essential to understand and be educated about your pension.
Whether you’ve just changed your job or have simply never spoken to your employer about pensions, investigate what schemes they have in place and how these work. Find out if you are eligible for the pension based on your salary if you have been or will be auto-enrolled, and whether this pension is flexible when it comes to increasing your contribution. Building your understanding of both the pension schemes available to you, and pensions as a financial concept more generally, will help empower you to make smarter and more conscious financial decisions.
Think about Retirement
Whilst the age you retire is in part dependent upon your financial circumstances, it is also a very personal decision.
Think about whether you envision retiring as early as you can, or if you imagine as long a working career as possible. This will impact the emphasis you put on saving for your pension and how you may want to approach your career in general, so it’s important to start considering when you want to retire as early into your working life as possible. Of course, this is subject to change, but you can start to research how much you would need to save for how much you would need to live comfortably once you stop working and what contributions you will need to make, based on when you want to retire.
Set your financial goals
Building up your pension is a long-term financial goal, however, the impact this will have on your outgoings and savings will be very much experienced now.
When it comes to organising your finances, setting goals is key to developing good habits and helping you to get the most out of your money. From setting a target for your emergency savings fund, buying a new laptop, to saving for your mortgage, these goals should range from expenses you want to make in the not-so-distant future to long-term goals and lifestyle habits.
When establishing goals, don’t just think about your incomings and outgoings but your wellbeing too. For example, if going abroad and travelling is the highlight of your year, make sure you prioritise saving for this. Or, if you find going to a gym and working out with a personal trainer aids your mental health and overall mood, then cut expenses elsewhere so you can afford this. Perhaps it is building up your overall savings and pension that will ease financial and general stresses the most.
Regardless of what they are, setting these goals and working on establishing how you need to both save and spend to achieve these goals is key to developing good money habits. It is also helpful in understanding if, after setting aside funds for your goals, you have any money to spare to put towards your pension in addition to the amount you are currently paying each month.
Adjust your Contributions
Perhaps you have reviewed your financial goals and realised you either need to be contributing more to your pension or can contribute more, then take the steps to do just this. Your pension contributions shouldn’t be stagnant and fixed throughout your working life.
Often, your employer will provide you with the opportunity to increase your monthly contributions to your pension, up to a certain percentage of your salary. Or you can chat to a pension planner or financial coach about what private pensions are available that might suit you. Opting for a private pension gives you another opportunity to boost your savings for retirement, with many of these investing money in stock market-linked funds which gives you the potential to grow your savings more over the long term.
On the other hand, there may be periods in your life where you cannot contribute the same amount to your pension as you have been doing, or you may struggle to contribute altogether. For example, if you leave or are in between jobs. While this often can’t be avoided, it is important to consider the impact of this on your pension and try to offset this by contributing more to your pension once you are in the position to do so.
Keep on Top of Your Pensions
As we move to different jobs within our careers, it can be easy to lose track of the different pension pots we’ve contributed to. Employers will have different schemes in place, so it’s important to keep note of which providers you have used in the past or speak to previous employers if you cannot find this information.
Combining all your pots so that your pension contributions are all in one place is a simple way to stay organised and keep on track of how much you have saved so far.
Retirement is a time when you can finally unwind and realize the much-awaited “golden sunset” goals for which there is a need to be financially well-prepared. Don’t hesitate to consult a seasoned financial advisor while planning for it.