The UK remains in the grip of the public and private pensions crisis, as the statutory retirement age continues to rise and an inadequate amount of money is being committed to long-term savings.
While this is due to poor money management and a fundamental lack of savings in some instances, it’s often the result of a failure to plan effectively and budget successfully on a day-to-day basis.
But why is it important to plan your retirement early, and what are the best ways of optimising your income once you’ve left the permanent workforce?
A Word on Proactive Retirement Planning
Before we discuss the best ways to optimise your retirement income, it’s important to consider the importance of proactive and early planning.
Aside from the fact that your retirement planning needs to consider time horizons across an extended period, kickstarting this process early enables you to take advantage of the so-called “power of compounding”.
In simple terms, compounding refers to the ability of an asset to generate earnings over time, with these gains then reinvested into other assets that produce further returns.
As a result, your returns are compounded and enhanced incrementally, with the precise impact of this, determined by the composition of your portfolio and the amount of time that you allow for your returns to grow.
So, by starting savings for your retirement in your 20s (even with a relatively small amount of money), you can benefit from the power of compounding and make the absolute most of your savings.
How to Optimise Your Retirement Income
The question that remains, of course, is what other steps can you take to optimise your retirement income over time? Here are some ideas to keep in mind:
- #1. Work Alongside a Financial Planning Expert: Financial planning refers to the process of aligning your needs, values and personal objectives with your starting capital to create a viable investment plan for the future. In this respect, financial planning affords you a complete overview of your circumstances and goals for the future, with experts playing a critical role in bridging the gap between the two and identifying opportunities to optimise your returns over time.
- #2. Increase Your Pension Contributions: If you are starting early and remain of working age, you can simply boost the value of your pension by increasing monthly contributions. This will apply largely to your workplace pension contributions, while potentially increasing employers to increase their own contributions over time. This can generate deceptively inflated gains in a relatively short period of time, so it’s highly recommended regardless of your age.
- #3. Recover Lost Pensions: If you’ve worked at several jobs throughout the years, you may have a number of old and outdated pension plans in your name. These are often lost as we grow older, with the Association of British Insurers reporting that there are 1.6 million misplaced pensions in the UK worth an estimated £13,000 each. So, be sure to review your older paperwork and liaise with providers to identify any lost plans, and incorporate these into your planning.