Make the most of the early years and maximise from the power of compounding
Retirement might seem a long way off, so it’s easy to understand why saving for retirement isn’t a priority in your 20s – a decade when advancing your career, not planning for the end of it, seems more important. But, youth is a huge advantage when it comes to building wealth for retirement because it gives you time to maximise from the power of compounding.
Pensions can seem complicated, but the basic idea is a simple one. And increasingly, if appropriate, people are turning to private pensions as a tax-effective way to increase their retirement income. Once you’ve decided to start saving for retirement, you need to choose how you’re going to do it. The precise amount you’ll need to save each month to retire at 55 depends entirely on the kind of lifestyle you plan on having in retirement. If appropriate to your particular situation, there are several different types of private pension to choose from. But, in light of recent government changes, the tax aspects require careful planning.
Things you can do to increase your chances of success
The future may seem far away, but you need to start planning early. Regardless of your goals, there are things you can do to increase your chances of success! It is important to look objectively at your plans and adapt them as your priorities change over the years and you go through different life events.
When it comes to managing money, one of the things some people find most difficult to understand is the tax relief they receive on payments into their pension. Tax relief means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.
Fundamental change in the approach to retirement savings
A revolution in pensions transformed the retirement prospects for millions following the passing of the Pension Schemes Act 2015. April 2019 is the fourth anniversary since the introduction of the pension freedoms, a fundamental change in the approach to retirement savings.