Retirement is something that you should look forward to. But for those who do not take their retirement planning seriously, there’s a lot of stress that the thought of retirement may conjure in their minds.
It is well known that many British adults fail to plan sufficiently for their retirement and as a result find themselves under-prepared for their retirement. Following are certain common mistakes that you can avoid when it comes to saving for retirement.
Starting too late
It is a common reason why most Britons are unable to have adequate savings in their retirement. While it would be over ambitious to expect people in their 20s to begin saving for their retirement, the failure to do so continues throughout their 30s and 40s in most cases. They begin to give it a serious thought only once they are nearing their retirement which means they begin saving for it in their 50s. But this is often too late to reach their savings goals.
An advantage of starting early is that you get to enjoy the benefits of compounding. One shouldn’t underestimate the boost that their savings can get as compounding helps you earn interest on the interest that you have earned.
Considering that you start small with saving just £500 at the age of 25, you can earn 10 percent per year which means you can accumulate nearly £3 million by the time you reach the age of 65. On the other hand if you start saving the same amount of £500 at the age of 50, with an annual interest of 10 percent your investment will only reach £216,000 by the age of 65.
Not Utilizing Employer Contributions
There has been a significant improvement in the recent years when it comes to the UK workplace pension landscape. Employers are now required to automatically and mandatorily enroll their employees into a pension scheme and make contributions towards it. This helps employees to save money for their retirement even when they are not quite serious about it.
Despite this advantage, many Britons are failing to capitalize on their workplace pensions. By making extra contributions they can make a big difference to their wealth in the long term. For this reason, employees must ask their employer about the possibility of contributing more to their pension by topping up their regular payments.
Failure to Use Tax Efficient Products
A number of tax efficient products have been set up by the government which has been designed to make people save more for their retirement. Self-invested personal pension is a type of do-it-yourself pension scheme which offers significant tax relief.
There are several types of Individual Savings Account (ISAs) which are completely tax free such as the Stocks and Shares ISA, the Cash ISA and the lifetime ISA. Not taking advantage of these tax free products can prove to be a huge mistake if you’re not investing in other investment vehicles.
Too Much Cash
It is always important to have some savings in cash. But when it comes to saving for retirement cash may not prove to be an effective instrument for investment. By holding all your savings in cash you could be falling back on making profits in the long run. If you have the long term picture in mind and wish to save for the same, you must invest in assets that you know will grow with time and add to your wealth and sadly, cash is clearly not one of them.
Improper Asset Allocation
Asset allocation basically means how you have spread your money across a range of different assets. Some common ways to spread your investment include bonds, shares and cash. The purpose behind allocating assets is to maximize your gains, reduce the risk factor of your portfolio and get you acquainted with your personal risk tolerance.
Any investor will tell you how Asset Allocation is an important concept in financial management. Over the long term it can account for nearly 90 percent of the returns you gain on your investment. Another important aspect of securing your retirement life is to write a Will by using an online Will kit free.
If you avoid these common mistakes, saving for retirement should not prove to be much difficult for you and enable you to lead a comfortable life in retirement.