Many people simply concentrate on the here and now, but how are you intending to live once you hang up your employment boots? What sort of retirement do you envisage having?
If it is one which involves comfort and living out some of your dreams without the need for debt advice in your latter years, then sorting out a pension early in life is a must.
Most people get a state pension but this is only ever going to provide for your basic needs, therefore you should take the time to look around at different pension schemes in order to top up your funds for retirement.
With people now living longer and longer thanks to medical breakthroughs and changes in lifestyle, you need to try and save more money. Couple that with the rising cost of living – which is only going to grow as we get older – then it is advisable to
start putting away money for a rainy day as early as possible.
In simple terms, pensions work by you and sometimes your employer paying money into your pension on a regular basis – say the start of the month, with funds coming straight out of your wage.
This is then invested so that the fund can grow over time depending on a number of different variables. It is likely that you will be asked to choose a fund based on risk factors, with each carrying different rates of interest.
Eventually, when you retire the pot of money will be paid to you for you to live off for the rest of your life. This could be a lump sum or regular income depending on how your pension scheme is set up.
The amount of money you get in your pension completely depends on how much you have saved, and there are a number of different ways you can do this.
Employers offer workplace pensions, often through a single provider, which you are entitled to join. In fact, the government has now introduced a new law which requires all employers to enrol their workers in to a qualifying workplace scheme if their staff are not already in one.
This move came into effect on October 1st last year, with individual employers’ duties coming into force over the next five years based on their size.
Starting early really does make a difference with pensions. A demonstration from Standard Life shows that if you started saving $200 per month from the age of 25 then the taxman would contribute $24,000. This figure is halved if you start your pension age 45.
Therefore, when retiring at the age of 65 and following the above rules, your pension would be worth in the region of $167,000 if started at 25, compared to just $67,100 if enrollment took place 20 years later.
Not only does starting a pension earlier in life allow you to reap rewards when it comes to retiring, but it gets you in to good financial habits at an earlier age. Being aware of things like pensions, their implications and how they work will make you aware of how important it is to look after your economic well being.
Picking up general practices of financial planning is a good thing, and it should ensure that you are more organised and clued up with other aspects of your income and outgoings.
The Citizens Advice Bureau also recommends starting a pension early in life, stating: “If you’re young, it’s tempting to think that pensions are for older people. But the earlier you start, the longer you’ll have to put money away. You may also have more options later on to retire early. People who leave saving till later in life can end up with smaller pensions or have to work longer to make up the money.”
If you are lucky, you should be looking forward to a long, healthy and happy retirement without the need for debt advice from a company like Debt Free Direct, but much will depend on planning ahead for when your working days are over.
photo by tax credits