Over 50 Saving Tips
The day you are finally able to retire may be something you have been dreaming about all of your working life. But whatever you are planning for retirement whether it is travel or just spending time with the family, chances are that your plans will be affected by how much money you have saved for your disposal.
There are many different options for saving in later life, for many, it is having their own pension pot, although there are a few other savings vehicles worth considering if a pension is not for you or you are still unsure about the best way of planning for your financial future.
You may decide to take out your own pension because of the benefits of getting money back on tax relief, added employer contributions if on a work pension scheme, as well as being able to lock away your funds until retirement. This allows you to avoid otherwise unnecessary spending, enabling your money to grow that much further.
The good thing about company and personal pensions is that they are specifically designed to save for retirement.
Personal or Stakeholder pension
With a personal pension you can make contribution payments, usually while you are earning to begin building up your own pension pot as soon as you or your employer start paying into the pension.
You cannot access your fund until you start claiming on your pension, the aim being so that your investment can grow substantially over time. When you do finally decide to start claiming on your pension the accumulated funds will then be converted into regular income for the remainder of your life. Or you may even be able to take this as a one off tax-free lump sum if you prefer.
A stakeholder pension is a type of government regulated personal pension which enables you to make flexible contributions with caps on annual management charges. The main advantage of this is that the government will pay tax relief on any payments made to our pension pot. This means that for every £80 deposited into your fund you will receive an extra £20 on top from the government.
You can contribute as much as you like into various pension schemes and take out as many pensions as you wish. Each year you will receive tax relief on your contributions worth up to 100 per cent of UK salary or income earnings subject to annual allowance after which tax will be charged. Although some restrictions have already been put into place to prevent people from making large additional contributions with full tax relief ahead of April 2011 where your tax relief will be reduced if your average earnings are £150,000 or more.
If you do wish to invest in multiple pension schemes be aware that each is likely to vary as well as having their own administration charges. It may be worth seeking advice from an independent financial adviser before deciding to invest in more than scheme at a time.
If you have a company pension this may also work in similar way to a personal pension, called money purchase schemes. Salary related schemes are the other form of company pension which can vary slightly. Although work pension schemes can vary in different companies these are generally the two main types.
In a money purchase scheme the amount you receive is based on the amount that has been paid into the scheme and how well the money has been invested. Upon retirement, your fund is put towards your pension, usually by buying an annuity which is provided as regular income for life.
With a salary related scheme the amount of funds you finally receive at retirement is based on your salary earnings and the number of years you have been an active member of the scheme.
Usually most employers will be required to offer you the right to join a pension scheme even if you just work on a part time basis you should still have some entitlement.
However, before you sign up to any form of company pension scheme be sure to check how much you will need to contribute on a monthly basis and what extra contribution your employer will add to the fund.
Remember you receive tax relief on contributions made to your pension account. This means you will pay less tax because your employer deducts the pension contributions from your pay prior to tax charges.
Although these types of pension schemes usually require you to make a regular contribution based on a percentage of your salary, you may also be able to boost your pension pot by making additional voluntary contributions (AVCs).
If you are already part of a company pension scheme and change employer you should still be entitled to the amount you have already built up upon retirement or even transfer this into another pension scheme. However you will not be able to continue paying into this scheme once you have left a particular post.
If you haven’t already joined a company pension scheme and you work for an employer who runs a company pension scheme and you are eligible to join, you should see if it is in your best interest to do so. If you are unsure about becoming a member of the schemes ask your employer to explain the benefits it provides and what proportion of your salary you will need to contribute.
If you do not wish to rely on a personal or work based pension there are a number of other savings alternatives available to help you get the money you need for a comfortable retirement. There are a range of ways you can build up your money for the long term these include ISAs, bonds or you may even choose to invest in property. Each type of investment works differently and some may work better than others for different people depending on their individual circumstances and preference so it is important that you make the choice you feel is best for you.
ISAs (Individual Savings Accounts)
An ISA (Individual Savings Account) is one of the most common alternatives to a pension in building that all important nest egg for retirement. According to recent research almost two thirds of ISA customers are using their accounts precisely for the purpose of saving for retirement.
One of the main advantages of setting up an ISA is that all returns are free of income and capital gains tax. Although if you invest in a stocks and shares ISA you will be charged tax on 10 per cent of any dividends paid by companies to their stock holders.
As of last year you can now save up to £10,200 a year into an ISA up from £7,200, making it a great savings tool for retirement. Before choosing an ISA it is important to shop around to find the best deal for you and your circumstances.
If you opt for a cash ISA you will have the added security of knowing that you will always get the money back that you originally invested. There are many types of Cash ISA available with many paying competitive rates. Although stocks and shares ISAs can generate better returns there is a greater risk of loss as stock values can fall.
Cash ISAs can also have the advantage of offering flexibility and easier access to your money but this can also mean you may not get the best possible rate available. However, other forms of investment can allow you to lock your money away for a longer fixed period and therefore a better rate on your return.
But if you are over 50 your savings options don’t end there! There are also some attractive government and corporate bonds available on the market. These are similar to an ISA in that you earn tax free interest but unlike cash ISAs, bonds are bought for a fixed term and are not flexible in allowing easy access to your funds. However they do have the advantage of maintaining their value unlike stocks and shares.
If you retirement is drawing nearer and you are yet still unsure of the best way to plan financially there are a number of governing bodies you can turn to for advice. Or you can seek an independent financial adviser (IFA) who will be able to offer you invaluable advice and help on how to best manage your savings, investments and retirement funding.
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