Having a comfortable retirement is one of the main aims of many investors. With that being said, achieving this goal that can often be complex, especially without expert investment guidance.
Therefore, we wanted to use this article to show you how Individual Savings Accounts (ISAs) can help you plan for the comfortable retirement you desire.
Read on to learn what an ISA is and how they can be beneficial for your retirement.
For more expert guidance on investing for your retirement, be sure to speak to your modern wealth management service.
What is an ISA?
An ISA is a unique type of account that allows you to build your savings up whilst sheltering your money from tax.
ISAs are often referred to as ‘tax-wrappers’ for this specific reason. The money you invest in your ISA is not subject to any tax charges, and you can invest in these accounts every tax year.
The amount you can save in an ISA is determined by the annual ISA allowance for your tax year. This is the total amount you can shelter from tax in your ISA each year.
As of the current tax year, 2023/2024, the ISA allowance is £20,000.
Currently, there are four types of ISAs available – cash ISAs, stocks and shares ISAs, innovative finance ISAs, and lifetime ISAs.
You’re only able to put money into one of each type of ISA each tax year, and the total allowance must be shared across all your investments.
How can investing in an ISA benefit your retirement?
Utilising an ISA can be a significant benefit to your retirement in many ways, including, but not limited to:
- Growing your wealth tax-efficiently
Investing in an ISA can benefit your retirement since it allows you to grow your wealth tax-efficiently.
Every investor is likely to have their own financial goals for the future, whether it be to retire at an early age, support financial dependants in retirement, or to live a particular retirement lifestyle.
Whatever your unique goals are, a core component of achieving them is to have sufficient savings when you retire.
With an ISA, you can continuously grow your wealth each tax year, without your money being impacted by tax charges.
This can maximise your savings, and help you build your wealth effectively towards your financial goals.
- Diversifying your investments
Another benefit of ISAs when planning for retirement, is that it allows you to diversify your investments.
Pensions are an important part of retirement planning, but it can also benefit you to expand your investment profile to also include ISAs.
For one, this can add an additional £20,000 of savings each tax year on top of the £60,000 allowance you have for your pension. This means even more money being sheltered from tax each year.
Also, having different types of ISAs can benefit your wealth, such as investing in a stocks and shares ISA as well as a cash ISA.
The cash ISA can help you save your money in a standard account, but the stocks and shares ISA can help you grow your wealth with potentially successful investments.
Any growth made in your account will be free from Capital Gains Tax (CGT).
- You can invest in an ISA right away
Investing in an ISA is also good for your retirement planning since it’s an account you can begin investing in right away.
You must be over 16 to open a cash ISA and over 18 to open other types of ISAs. As well as this, you must be a resident in the UK or a Crown servant or their partner.
This means you can start investing in ISAs at an early age, to give you even more preparation for your retirement.
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Now you’re aware of the importance of ISAs when planning for retirement, make sure you consult your wealth manager to find the right approach to your own ISA investments.
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Please note, the value of your investments can go down as well as up.
