Pension Traps That Leave You Short In Retirement

PensionsGovernments are making clear that individuals have a personal responsibility for making sure they have enough money to finance a comfortable retirement and they cannot expect more than basic aid from the state.

Many countries are setting up workplace pensions schemes, like auto-enrolment in the UK, to help workers save more when they are younger.

But retirement savers still fall into some common traps along the way that can mean they have less money than they should when they give up work – or they have to work for longer to make up the shortfall.

So what are these pitfalls and what can you do to avoid them?

Don’t rely on the state pension

The new flat rate pension is index-linked and starts at £151 a week – providing you have 35 ‘qualifying’ years of national insurance contributions.

That works out at around £654 a month, which is not a lot if you have big plans for your retirement.

Start saving now

It doesn’t matter how old you are, if you are not saving money then you should be because every penny you spend now is money you cannot replace when you retire.

So think again about free spending now and pull in the reins so you have extra money for later

Sign up for a company pension

Not only will you receive tax relief on your pension contributions, but your employers is also likely to top up the money you pay in, which is cash you do not have to find for your savings.

Claim tax relief

If you are a higher or additional rate taxpayer, you receive 20% tax relief on your pension savings automatically but have to claim the rest by filing a tax return. HM Revenue & Customs (HMRC) says thousands of retirement savers either do not know or forget to claim this cash.

Forget property pensions

If you plan to sell your home and downsize, then think again. House prices are not certain and mortgage interest rates can only go up, making buying unaffordable for many in an already tough market.

Diversify and review

Keep an eye on your retirement savings and check they are performing on target – markets change and so do returns on investments. Don’t keep all your savings tied up in one sector or fund – spread the risk.

About John Cassidy

You can find me on Google+ and other social sites coming soon