We’ve all got different ideas about the age at which we’d like to retire, but when it comes to that magic number, will you be able to afford it, or will you have to continue working?
With life expectancy increasing and a rising state pension age people face the prospect of needing to save more and/or working for longer to achieve the kind of retirement they want.
It was announced in July that the state pension age will rise from 67 to 68 from 2037.
But there are ways you can boost your chances of retiring when you want – even if there are no guarantees.
Alistair McQueen, head of savings and retirement at Aviva, says: “There is no secret silver bullet that will help us short circuit the journey to our retirement. But that does not mean we are powerless to act.
“The most positive action we can take today is to take control of our savings; consider where we want to get to and understand from where we are starting. We can then plan how to bridge the gap.”
Here are McQueen’s tips for taking control of when you retire:
◆ Start early. Try to begin saving at least 40 years before you want to retire. The later you leave it, the more you will need to save each month to reach your target. To retire at 60, start saving at 20.
◆ Save at least 12.5 per cent of your salary towards your pension every month. Save at this level for 40 years and you’ll have a stronger chance of securing your goal – the commonly targeted retirement income equivalent to two-thirds of your salary. Remember, this 12.5 per cent can include money from you, your employer and the taxman.
◆ Regardless of when you start saving, aim to build a pension pot of at least ten times your salary by the time you retire.
◆ Saving into a workplace pension means your employer will also contribute. If you can, maximise your contribution to maximise your employer’s boost.
◆ Invest wisely. By investing your money, in a pension or elsewhere, your money can grow through to your target retirement date. Bear in mind, though, that investments can go up and down in value.
◆ Keep checking. Every year your pension provider will send you a statement explaining how much you have built up. Use this information at least once every year to check whether you are on track for your retirement target – perhaps you should change your contributions or your target.
◆ Use free online tools. Many pension providers now allow you to monitor the value of your pension as often as you like online. There are also many free online “retirement calculators”.
◆ Careful and constant budgeting can help maximise your savings. In simple terms, £1 saved today could potentially be worth more than £5 by the time you reach retirement if you invest it sensibly over 40 years.
◆ Shop around. Find the best deal for you as this could make a significant difference to your income through the rest of your life and may allow you to retire earlier.
◆ If you’re affected by the state pension age rising from 67 to 68, you could consider saving money to help fill the £8,000 gap. To build £8,000 over 20 years you would potentially need to save about £20 every month, when investment growth is factored in. This amount perhaps equates to buying two fewer coffees a week.