finances and financial advice

Life Begins At 50

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retirement finances and financial advice

Life Is Hard

Life can be hard.  Really hard.  We’re all living longer, having to work longer, and save harder.  Working is stressful (unless you’re one of those people fortunate enough to have found a job you love – I hate you); marriage is stressful, all those compromises, superlatives, and dishes; raising kids is incredibly stressful with very little thanks, unless you’re Mark Richards (but then again he had to wait 21 years for it, read about his daughter’s incredibly emotional letter to him on fathers’ day)

So with all that stress, it would be incredibly ironic if you were to die before you got to truly enjoy the down time of retirement.  There are two solutions: live longer or retire earlier.  But when every £100,000 of your savings only earns you an income of £5,000 a year, you can easily see why people are having to work for longer.  Fortunately, you have it in your power to have some degree of control over both of these options.  Here are 10 ways how:

Know Your Retirement Needs

This should really read: manage your own expectations.  You need to define what you want from your retirement.  If you currently earn £16k a year and will always earn £16k a year, it’s pointless thinking you’ll own a 50 foot yacht and spend your time in casinos through retirement.  You need to have a realistic look at exactly what you want and then you can set goals to plan against it.  Do you want a big or small house?  Do you want land, or a small manageable garden?  Where in the country are you going to retire? (or out of the country based on current events) How much will you need to live on?  Once you have an answer to all of these you will be able to tailor your retirement planning accordingly.

This doesn’t mean that you need to know the answers at the age of 18.  It just means as you get closer to retirement you might need to be more flexible in your approach and be more defined in what you do.

Start Retirement Planning Early

That said, the principle should be that you start saving for retirement well before you even consider retirement.  The earlier you start the more prepared you’ll be and the easier the switch to focussed retirement planning will be.  A brilliant rule of thumb that financial advisers have released is that you should save the percentage of your salary that is half your age.  If you’re 20 when you start saving, then put away 10% of your net monthly salary until retirement.  If you’re 40 when you start, you will need to put 20% of your net monthly salary away.  Suddenly you see why it’s better to start early.

Once You’ve Started, Don’t Stop

The key point of putting the percentage of your salary that is half your age away is that it is based on you doing it all the way until retirement.  Retirement planning is a long term commitment and making it a regular part of your monthly budget is key to making it a success.  In order for it to be tangible, you really must do it every month.  Set up a direct debit or standing order so you don’t have to remind yourself to pay it.  In this age of bills, the saving will just get mushed up with all the other expenditure and you’ll learn to live without it.

A Pension Is Not Always A Pension

When you’re told you need to start saving for retirement, more often than not people will think of a stakeholder pension – be it workplace or personal; however, a stakeholder pension is not the be all and end all of retirement planning.  Yes the government will give you your tax back on every pound saved (that is if you’re on the lower tax threshold, for every 80p you invest the government will make it up to £1) but you have to be cautious and seek advice on how to invest properly as pension funds can go up and down depending on investment performance meaning that what you get out may be less than you actually put in.

Whereas in reality, you could consider a pension as anything that gives you a return based on an initial investment.  This could be share dividends, rent from a property, or income from you as an asset.  By buying stocks and shares and playing the markets, you could earn an income from those shares you hold; if you are fortunate enough to get on the property ladder and even more fortunate enough to be mortgage free, then renting that house (or a room inside it) could give you an income that can make your retirement that much more comfortable; investing in yourself by doing courses, qualifications, training that means you are an essential asset to someone means that you are earning an income based on you being an asset.

The bottom line is that you don’t always have to default to a stakeholder pension, or traditional pension plan.  There are alternatives that may be right for you, you just need to seek the right personal advice from a professional.

Open An ISA

If you speak to any financial adviser, the first question they will almost certainly ask is, “Do you have an ISA?”  If you say no, it is usually followed by a purse lipped sharp intake of breath.  This is your opportunity to legally join the tax avoidance bandwagon.  Many people complain that celebrities, the rich, and those nasty corporations are all at the tax avoidance game when they haven’t got the money or the opportunity to do so, but an ISA is your opportunity.  You can save up to £15,240 a year and pay absolutely no tax on the interest you earn.  Dependant on how cautious you are with your investments, this sum can be split between a cash ISA and a stocks and shares ISA, or wholly placed in any one of them.  Not many of us are in the position to save that much every year, so the positive spin is that every year 100% of your savings could lead to completely tax free interest being earned.  That’s not a bad position to be in.  The other beauty is that when it comes to retirement, you can withdraw all of that money and spend it on whatever you want, even if it is a midlife crisis!

Join Your Workplace Pension

Every company that has one or more employee, is obliged to provide a workplace pension.  This is usually a defined benefits stakeholder pension, that is to say it will be a pension scheme much like the one described above but your employer will also pay into it.  So if you’re over 22, earn over £10,000 a year, and work in the UK not only will you pay into your retirement plan, but so too will your employer and the government.  So for every 80p you put in, your pension fund could potentially have £2 in it.  That’s not bad now is it?  All you need to do afterwards, is trust that your employer has picked a reputable pension scheme provider with competent investors that will actually make your fund money and not lose it.  Of course there is flexibility and you will be given a choice of what funds you would like your money to be invested in, but you should really take professional financial advice before making any decisions to play the markets.

Don’t Touch Your Retirement Savings

We’ve already stressed the importance of starting early and maintaining the momentum of investments, regardless of the method you need to be consistent.  Many investment options give you the chance to have instant access to your money; this is a double edged sword.  You will get to the end of the month and feel that things are a little tight, or there is an event coming up, or something else equally pressing and you’ll be tempted to just dip into that nest egg you’ve accumulated.  Don’t!!  Saving is like a man pulling an aeroplane: so difficult to get the momentum and start, but once you’r rolling it becomes easier and easier.  If you suddenly stop and dip into your savings it is that much harder to start again.  You will always see your savings as your safety net and not your retirement plan.  You need to see it as your retirement fund and nothing else, every time you want to dip into it ask yourself what you are willing to sacrifice from your retirement as a result.  You’ll soon see sense and leave it alone.

Look After Yourself

Currently, those in the poorest sectors of society who are lucky enough to make it to the retirement age of 65, will only enjoy it for around 14 years.  Those that are in the richer sectors of society will enjoy retirement for a smug 18 years.  18 years is not a great return when you consider you’ve invested around 47 years to get there!  Bear in mind also that this is based on a retirement age of 65, by 2020 the retirement age will be 66 and eventually 68.  So if you don’t live any longer, you’ll only enjoy 11 years of retirement if you’re not brilliantly well off.

Looking after yourself is the only way you can put two fingers up to these stats, and reap the rewards of your retirement.  Forget fad diets, forget fad exercise regimes, turn to sustainable healthy eating and exercise based on your own personal needs and goals.  Looking after yourself is the only way you can have some kind of positive effect on the length of your life – excluding all unforeseen external factors and influences that are completely out of your control.

Ask Questions

If you don’t know what you’re doing with finance and retirement planning, seek professional financial advice.  Don’t ask your friend in the pub, shop, salon, etc etc.  Seek professional financial advice.  If you’re in Newcastle on the 2nd or 3rd July, or in Liverpool on the 8th and 9th July you can catch the SunLife Money Matters Roadshow where not only can you get some great money saving advice, but it’s a great day out for the family as well.  There’s games and competitions, free ice cream, cake and tea, as well as lots of craft activities as well.  I thoroughly recommend it.

Enjoy Your 50s

If the thought of only having 11 years of retirement to look forward to scares the bejeezus out of you, why not start having fun in your 50s?  The festival season is here and ready to be enjoyed by all.  If, like me, the thought of getting dirty (and possibly infected) in Glastonbury really doesn’t appeal to you, then SunLife has created a useful map about some of the festivals all over the UK where you don’t have to be 18 to enjoy them.  It’s not all loud music and pop songs you’ve never heard of, but festivals that let you step back in time or taste a variety of great British gin.  Just follow this link to find the festival nearest to you.

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