Retirement may seem a very long way off when you're young. But if you're to have a good standard of living when you retire, you'll need to begin retirement planning as early as possible. It may not be the most exciting of subjects when you'd rather spend your money on enjoying yourself - but it's much better to start saving your money in a safe investment. Otherwise you could find that you can't afford to retire, or that you'll be living on a meagre income when you do. Here are some ways to help ensure that you have enough to live on when you retire …
The sooner that you begin saving for retirement, the better off you will be. Let's say you have a certain figure in mind. If you leave it until you're older, you'll need to save much more per month to achieve that figure than if you started saving at a younger age. That's because of compound interest. Wait until later, and you'll have to save a lot more per month.
Property can still be one of the best ways of saving for your retirement, although you should be wary of using it purely as an investment vehicle. Buying a property to live in will ensure that you have an asset that should appreciate in value. You'll also eventually pay off the loan and thus be able to live rent- and mortgage-free, which will make a major difference to your living costs. And you can also downsize if the home becomes to big for your needs.
However boring the subject of saving may seem, compared to enjoying yourself, prioritise your savings before frivolous spending. After you've paid your bills, immediately put part of your income into a pension or other savings vehicle; using a direct debit will mean that the money goes out without you thinking about it. Only then should you think about unnecessary or 'fun' spending.
When you think about how much money you'd like to live on when you retire, bear in mind the effect of inflation. You'll actually need more, because money will be worth less and everything will cost more. So adjust your figures to take into account the effect of inflation.
However much you want to get at some of that lovely money building up in your retirement funds, leave it alone. Withdraw any of the cash and you'll be depriving yourself of a lot more cash in the future. And don't reason that it won't make much difference if you take just a bit out, as if you do that once you'll do it again.
The UK is extending retirement age for the state pension, and it's likely that other countries will do the same as life expectancy grows. If you defer your pension and retire later, you'll have more income when you do give up work. So consider ways in which you could carry on working.
As well as saving enough money to fund your retirement, it will also serve you well if you adopt the right attitude towards spending. Learn to live on a smaller budget rather than splashing the cash and treating yourself to everything you want. Most things we buy are not necessary. So not only will you have more to save, but you will be able to live on less money in retirement if you end up with less than you'd hoped for.
How much do you think you'll need to live on when you retire?
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