When it comes to our old age, theres no escaping the fact that the State Pension isnt really going to provide very much at all. And its going to be worse in years to come when its value has eroded further and people are having to wait even longer.
We really need to make provisions for our old age, but millions of UK savers are making the same common mistakes. Here are five I think you really need to avoid.
Relying on the State Pension
Far too many people dont save any cash towards their old age at all, and many havent thought about how theyre going to live on just 8,500 per year.
It was fine to do that in my grandparents day. Their State Pension was enough to live on comfortably, and my granddads modest company pension helped them to have a decent holiday every year.But when it came to my parents, my dads good company pension really was needed.
It will soon be my turn, and Im very glad Ive accumulated some reasonable pension funds of my own.
Not saving enough
Once people do start to save, they frequently fail to stash enough away every month. My approach is to invest in dividend-paying FTSE 100 shares.But how much do I need?
If I can get 5% a year in dividend income (which I think is achievable) Id need 100,000 invested for every 6,000 of generated annual income. And to build a 100,000 pot in the first place, assuming I could manage an overall 6% return per year, Id need to invest 250 per month for 19 years.The more you save, the better.
Leaving it too late
When did you start thinking about saving for your retirement? Ive had a couple of decent company pensions earlier in my working life, and theyre now transferred into my SIPP which Im managing myself.
But remember that monthly 250 for 19 years needed to accumulate 100,000? You could more than double it by starting just nine years earlier the first nine years is worth more than the next 19.
I really wish Id started my own investments a lot sooner, when I was young and spending too much.
Taking whats offered
If youre in the enviable position of having a decent company pension when you retire, thats great. But how will it be turned into a regular income for you?
Putting all of the cash into an annuity is still a common practice, even with todays appallingly low rates, and many new retirees just accept what their pension manager offers. And once youve invested in an annuity, your lump sum is gone and theres no changing your mind.
So shop around, look for better returns or more flexible options. Or, as Ive done, transfer it all into a SIPP and manage it yourself.
Not facing facts
My Motley Fool colleague Harvey Jones has identified what I see as the biggest mistake of all when it comes to pensions. In some ways its a combination of the other mistakes Ive covered here and more, but in other ways its bigger and more fundamental than all of these specific errors put together.
Its simply not facing the facts, and I can only urge you to read Harveys words.
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