Retirement savers repeatedly make common mistakes when putting money away for the day when they quit work.
Some are deliberate choices, while others are unforeseen opportunities that pass by.
If you are saving hard for retirement, here are some tips and hints for growing your pension pot:
Although saving more money sounds obvious, too many workers put too little away too late to make the most of their savings. Official figures show 40% of British workers do not have a pension, and many of them are nearing retirement age.
Most say they need around £23,400 a year for a comfortable retirement, but the average pensioner picks up around £320 a week (£16,600), according to government statistics.
Don’t delay saving
The longer you wait, the more you have to put aside to build a reasonable retirement fund. Compound interest is your enemy, which Einstein dubbed ‘the most powerful universal force’.
Put off saving for 10 years and the compound interest missed could cut your pension savings by half by the time you retire.
Keep control of your money
Around 40% of workers have forgotten the details of pensions they might have with former employers or don’t know how their cash is invested. Review your pension arrangements at least every two years.
Check the charges
Buyers and sellers quibble over pence at car boots, but pension charges can snatch a big lump of your savings, so make sure you move your cash to a value-for-money provider.
Property’s not so hot
Investing in your home with the hope of downsizing and taking a tax-free profit as house prices rise is not a financial strategy. It’s like a hit and hope lunge that could mean all or nothing. Diversify your assets. You don’t need all that space to live in when the family has left anyway.
Don’t bank on an inheritance
Everyone’s living longer and the value of assets is decreasing as low interest rates and inflation bite. Bank on what you control, not what you might never have.
Take cash from your boss
Workplace pensions will include mandatory employer contributions by 2018. It’s free money and would be rude to turn down.
State of mind
Don’t rely on the state pension. It’s likely to be £144 a week linked to the consumer price index when you retire. That’s £7,488 a year – almost £16,000 short of what everyone says they need.
More free money
Whatever rate you pay tax, the government will add to your annual pension contributions – as a basic rate taxpayer that means you only have to pay in £80 to earn £100. Don’t look a gift horse in the mouth.
Take professional financial advice
Don’t retire without shopping around for an annuity or considering pension drawdown. If you are an expat, your adviser should flag a Qualifying Recognised Overseas Pension Scheme – a specialist pension that comes with tax breaks.