Investing in Your Future: Why Planning Your Pension Matters

Everyone likes to think of the here and now when it comes to investing. Which stocks are hot? Where is the S&P 500 heading? What’s the word on cryptocurrencies? Even though they all eventually have a long-term focus because you want an asset to appreciate in value, the initial focus is on the present. That’s not a bad thing. In fact, being on trend or, preferably just ahead of the curve, is important when it comes to investing.

However, there are also times when it pays to look beyond the present and towards those significant long-term life events, such as retirement. According to a 2020 survey by Unbiased, 17% of Brits aged 55+ said they didn’t have any retirement plans beyond a state pension. This is a potential problem and one of the main reasons why investments shouldn’t always be about the here and now. 

Don’t Let Your Future Pass Your By

As of 2021, the UK state pension was £137.60 per week. That’s not a meagre amount, but it’s probably not enough for most people to live on. According to Retirement Living Standards, the minimum amount a single person needs to cover their basic living costs and have “some left over for fun” is £10,300 per year. If you want a moderate quality of life, the cost is £20,200 per year. Given that the state pension was worth £9,399 per year (2021/2022), you can see that there’s a shortfall.  

That’s why it’s important to plan ahead and make future investments now. Indeed, when you’re assessing how much money you need for retirement, there are a variety of factors to consider. Firstly, there’s age. By 2028 the state pensionable age will be 67. Secondly, you need to think about expenses. Will you still have a mortgage and debts? Thirdly, how long is it until you retire? The less time you have, the more you may need to focus on saving and investing.

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Finally, how much are you earning now and is a percentage of that enough for you to live on in retirement? These factors have to be taken into account when you’re planning for retirement. A solid starting point for calculating how much you need to retire with is the 4% rule. In other words, you shouldn’t use more than 4% of your savings to live on in a given year. From this, you can multiply the amount you currently spend on living expenses by 25.

That number is the amount of cash you should have when you retire. Of course, this is just a guide. However, it’s a good rule to have in place when you’re planning for retirement. Once you’ve set a target, achieving it is the next objective. A workplace pension is one way of getting there. But what if the projected returns aren’t great? What if you’re self-employed?

Take Control of Your Pension

This is where investments can help. A self-invested personal pension (SIPP) is a financial product that allows you to create your own retirement pot. In simple terms, you’re doing the same thing as the company running a workplace pension. With a SIPP, you’re able to invest in stocks and shares. The government will also add an additional 20% to any amount you invest. The crucial point here is that a SIPP allows you to invest in various financial instruments in a tax efficient way.

Moreover, you’ll have more control over your retirement funds. This means it pays to have a long-term focus when you’re investing. Yes, jumping on the bandwagon and buying the hottest asset right now is great if you’re investing outside of a SIPP. However, if the money you’re aiming to make is for retirement, it’s better to look at established performers such as the S&P 500 or the Fidelity World Index Fund. Being on-trend is important in the investment world. But there are also times when you have to think about the past, present, and, in turn, the future when you’re playing the financial markets.

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