Retirement is one of those things we tend not to spend much time thinking about in the early stages of our working lives, but perhaps we should – even if it is getting further away.
For most 20- or 30-somethings in the workforce today, official state sponsored retirement will probably come somewhere near the 70-year mark. While you may think that’ll give you more time to get things figured out, there are a number of reasons you should be taking steps to prepare right now, as well as some simple steps you can follow to kickstart the process.
Why it’s important
In a world where living costs seem to be rising while wages plateau, staying financially afloat appears to be harder than ever. While that presents a number of issues in the here and now, it also offers potential hurdles down the line – one of them being your final pension amount.
Because of the economic situation, more people than ever are opting against contributing towards a final salary pension, while the state pension age is edging further away. That means many risk working for much longer before retirement, and then not having enough money to enjoy a decent standard of living once they get there.
So, while it may seem hard to start planning for your retirement now, doing so will create a much better situation down the line. That can be easy to ignore in exchange for having a bit more money in your pocket today but staying lucid on what the future holds will pay dividends in the long term.
What you should be doing
There are a few steps you can look into to start creating a better pension set up.
Understand your likely income
Especially in the early days, there’s a decent chance that you’ll have barely paid a thought to your current pension status. You might not even be aware of whether you are or aren’t paying into a pension fund. If you’re not sure, that’s one of the first things to establish.
Once you’re aware of that, use a pension calculator to get an estimate of how much you’re likely to have come retirement, based on your current earnings and career trajectory. Once you have the estimate of that final figure, you can take action accordingly if you feel it’s looking a little low.
Check your state pension
As mentioned previously, your state pension age – the age you need to be to access a basic pension fund from the government – is slowly edging further away.
Why is this important? Well, if you’re still relatively young and plan to retire before you hit the estimated 70-year-old mark that will be required to get a state pension, you’ll need other ways of funding yourself. Once the state pension comes in, it can provide a major boost to your finances. Until then, you’ll need to rely on your own efforts, which is where early planning comes in.
Start as early as possible
It really does pay to start your pension fund, or indeed go above and beyond the bare minimum in contributions, as early as possible. However, with all the financial hurdles life is likely to throw at you in the near future, this can seem an awfully tough ask.
With that said, making higher contributions to your pension fund, no matter how small, is a great habit to get into. For one, it means more money in your pension pot, but it also encourages the routine of apportioning your income more responsibly.
Of course, there are bound to be more pressing financial responsibilities in the meantime, but you could always source other means of funding to deal with them rather than dipping into your pension savings pot.
Make adjustments as you get closer to crunch time
As you get closer to retirement, you should be able to start thinking about how much you’re actually going to need on a daily, weekly and monthly basis to live retired life as you wish. Take some time to calculate what budget you’ll need and see how that number stacks up to your current pension fund. If you’re looking a little short, you might want to focus your efforts into building up your pension pot in your final working years.
Retirement might not be on your mind right now, but it’s steadily sneaking up on us all. With it being so easy to forget about as time passes by, making a conscious effort to address your pension fund early could be the difference between a comfortable retirement and a more challenging one.