We all deserve financial security during our retirement days. Not being financially independent after quitting jobs is a matter of concern. However, many of us do not plan our retirement when starting off the jobs. But is that all we need to do? Or there’s more to it? We will discuss the 5 biggest challenges that you may face – saving up for your retirement.
Instant gratification – the desire to experience pleasure without any further delay. This feeling is ruling all of us in some way or other. We open a shopping app and end up spending hundreds of pounds on things that we do not need at all. And when the month comes to an end, we start thinking of where the money went. Spending money on unnecessary and unimportant things is the major blocker when it comes to saving money for retirement. Research shows that 15% of the people in the UK have no savings at all. And 1 in 3 Brits has less than £1,500 in savings. Saving money has always been a constraint when it comes to becoming financially independent.
In this blog, we will discuss:
- 5 reasons to save for retirement
- 3 biggest challenges you may face for your retirement fund
- How to overcome the challenges?
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5 reasons to save for retirement
You may have asked this question to yourself numerous times – why is it important to save money for retirement. If you are earning enough to cater to all your needs every month, then why bother saving money for the future? There are several reasons to save some pounds for your rainy day, especially for your retirement, even if you are decades away from it.
These are the top 5 reasons to save for retirement:
1. Pension is an amazing investment
- Investing your money in the right place to get maximum returns is one of the basic steps in achieving financial independence. And putting away some portion of your money towards your retirement can prove to be the cheapest way of investing money. Another great reason to have a pension pot is – your money is locked away. If you opt for an early withdrawal, you may have to pay an additional amount in the form of penalty. With ISAs, it becomes easier to access the money you have saved for the later part of your life.
2. You will get 25% of your savings – tax-free
- Personal pension schemes and workplace schemes for pension allows you to take 25% off your entire savings as a lump sum. So, suppose, you have put away £200,000, you can take out £50,000. You may use this money for any purpose. Pay off any existing debt, invest in home improvement, pay off your children’s university fees. The remaining amount will be taxable, and tax will be deducted in the same way as any other type of income.
3. Makes you keep the child benefit
- If in a household, one person earns more than £50,000 they are not entitled to child benefit. But if you are paying into a pension fund, you would be able to keep the benefit, which is worth £1,752.40 for 2 children a year. Government benefits and schemes are designed to help you plan your finances. Getting something extra to take care of the needs and requirements of your children can take off some portion of your burden.
4. State pension alone may not be sufficient
- Under the state pension, you will get £110.15 per week, which may not be sufficient. In a recent survey, 34% of Brits said they do not know how much retirement income they will need. Your lifestyle may change over the years and you may need much more than what you have estimated. Considering this uncertainty, it is better to keep aside a portion of your monthly income to help you get through your retirement days smoothly.
5. You can spend the money the way you want
- New rules in the Budget have revealed that you do not need to take an annuity. You can use your life savings the way you wish to. Whether you use the money to fund your long-awaited dream vacation or to spend the money to marry off your children – you are in complete charge of your retirement fund.
- Although these are some beneficial reasons for saving into a pension fund, we often fail to create a pot to take care of our financial needs. So, what do you think are the major challenges that one face while saving for retirement?
3 biggest challenges for you may face while saving for your retirement fund
If we start making a list of the blockers between us and your savings – the list will be endless. Few of them are low income, limited access or absolutely no knowledge of pension schemes available, state of the economy.
Listed below are 3 biggest challenges that you need to overcome (we will guide you how, so keep reading):
1. Lack of planning
- Failing to plan is planning to fail. This is a life mantra that should never be ignored. Before you even start anything, you need to plan efficiently about the goals you are aiming to achieve. Set SMART goals and take out the time to figure out your finances to prepare a solid plan. Now, what is a SMART goal? Well, a goal can be classified as smart, if it is specific, measurable, achievable, relevant, and time-bound.
- Calculate how much you may need considering the changes in your lifestyle. Then determine how much you can contribute towards your pension fund each month after all the necessary deductions. Then draft a plan to suit your income and expenses. If you need help from a professional – don’t hesitate to take a backseat. Go ahead and contact an expert who will assess your financial situation and help you make a proper and actionable plan.
2. Lack of budgeting
- Budgeting is an integral part of your personal finance. Without budgeting, there are slim chances that you can achieve your financial goals.
- Let us take an example to understand this more clearly. Suppose, today is your payday, and you have thought of gifting yourself something for all the hard work that you are doing. You went to buy a pair of jeans. While browsing through the gallery, you also found a pair of kicks that tempted you to buy it off. Such actions disrupt the plan of action that you are supposed to follow. And ultimately, you do not reach the goal that was set by you in the initial stage.
- A budget restricts you to overspend and that leads you to stay on track. There are various budgeting systems as it is not a “one-size-fits-all”. Choose a budgeting system that suits your level of income, and outgoings so that even if you consider rewarding yourself at the end of the month – you won’t regret spending a few pounds.
3. Economic uncertainty
- Although this factor is not under your control – however, it does influence how you earn, spend and save money. There are certain things that you can do to prevent yourself from falling into the slip when the economy downgrades. One of the wisest and easiest things to do is – save. Save as much money as you can when you are in the job so that even if you become redundant due to a recession, you will have a safety net to fall back on.
- Invest as much as you can into your pension fund and if possible create an emergency fund as well.
How to overcome these challenges?
- COVID-19 has already introduced a new set of financial challenges for most of the households in the UK. As the entire world is finding new ways to cope up with this major setback, people have started cutting back on their expenses. During this crucial time, you need to prepare a strict budget even if you haven’t lost your job.
- Do not overpay your investments, except pension. Even if you can just pay 5% of your income towards your retirement, keep doing it. Remember that the small steps will help you reach your goal sooner or later. Prioritize and plan every pound that you spend so that you do not spend your money in the wrong place. Pay off your high-interest rate debts first to expand your savings bracket. Having multiple debts may put in financial stress. Rather than worrying about paying them back at one go – prepare a plan that will help you take off the load gradually.
- Budgeting, planning, and implementation of your financial plan are the major areas that should have your undivided attention. If you master them, you can easily overcome the challenges that are coming in the path of you and your retirement.
