When Chancellor George Osbourne announced his pension reforms in this years Budget, part of the reasoning was to offer assistanceto responsible savers, he explained. After saving for the best part of their working lives, these people no longer have to worry about getting a raw deal in the annuity market.
Allowing people to withdraw as much of their pension pot as they want, instead of being required to buy an annuity, should encourage more long-term saving. Many, however, dont know how much they need to put away to see a reasonable retirement income from the age of 65.
Take care of yourself
Theres a gap between the sort of retirement people expect and what theyll actually get. Financial planning is essential to our wellbeing, but all too few of us understand what it means.
Mention saving, investing, interest and debt to the average person is that a conversation anyone would like having? How about security, stability, comfort or taking care of your family? People will willingly avoid anything to do with the former, while at the same time desperately seekthe latter. Theyre the same thing.
If you want a stream of retirement income for as long as you live, it starts with educating yourself.
Its not too late
A worker in their 50s can expect to live until 80 and beyond. Rest assured, thats more than enough time to ensure a happy retirement; but you have to act with purpose. To avoid a retirement nightmare, dontput off saving any longer.
Because our time horizon is a few decades, what were actually talkingisinvesting rather than saving. Investing is about planning an entire future. Saving is for holidays.
Retirement specialist Prudential suggests people retiring this year will need 120,000 and a full state pension to get themthrough to their 80s. How much, then, will you need to invest?
The retirement you want
Lets say youre 50 years old, have no debt and earn 40,000 a year. Our expected return on investment is 5% (roughly what UK shares have delivered over time). Youll need to invest 15% of your income, or 500 a month, to retire at 65 and receive the average expected annual income.
Thanks to the power of compounding, your500 per month couldbe worth130,000 in15 years. Thats not to say that there wont be anyhurdles, but youll be on the right track
If you’re interested in buyingindividual shares, even the seemingly safest companies can run aground, which makes diversification a must for prudent portfolios.
We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.