Ways to Save More for Retirement
Published by: LifeWorks,
Saving as much as you can for the day you stop working makes sound economic sense. And you may have options you hadn’t considered. Depending on your goals, you may want to take a fresh look at your spending habits, revise your savings plan, or get help from a financial adviser or debt-counselling service. The most important thing is to make saving a top priority and keep looking for new ways to save until you find the way that works best for you.
The importance of saving in midlife
Saving is important at any age. But it may become especially important in midlife as retirement approaches. There are two good reasons to save more for retirement at this age.
You may be at the peak of your earning power. Most of us reach the peak of our earning power between the ages of 40 and 60. This means that in midlife we may have more money to save than we will ever have again. Even if it seems hard to save now, it may be easier than it will be later in life.
The more you save, the more secure your future is likely to be. Take a look at any savings plans you developed earlier in life. Many people underestimate how much money they will need to retire. The Institute for Fiscal Studies (IFS) says that individuals’ confidence in their pensions is rising, but that the “adequacy of retirement incomes remains low, at only 53% in 2017.” Increasing your savings now, even if it means making sacrifices, will help you achieve a more secure future.
Reducing your expenses
To save more for your retirement, you may need to reduce expenses. Look for ways to save that align with your present and future goals. Here are some tips:
Know where your money is going. You may be spending more than you think, particularly on out-of-pocket expenses, such as food, clothing, and entertainment. Track all your spending for a month by making notes of what you buy and saving and categorising receipts. Then draw up a budget that shows your goals for spending and saving. Your bank or your organisation’s assistance programme may provide free budget-planning resources.
Couples should examine their spending and saving habits together. Even if one person is a spender and the other a saver, it’s important to have open and regular communication about finances, set financial priorities, and devise a budget together.
Get the lowest credit card rate possible. Check your statements or call your credit card companies to find out the interest rate (APR) you’re paying on your cards. Then shop around for cards with a lower APR. Some companies will lower your APR by several points if you call to request it or may offer incentives to keep your business.
Pay off your credit card debt. Debt is costly. Make it a top priority to pay off credit card debt. Pay your credit card bills faithfully each month, and try to pay more than the minimum due. Work to eliminate the debt starting with either the card that has the smallest balance or the one with the highest interest rate. Then move on to the one with the next lowest balance or highest rate, and so on. If you have trouble paying the minimums, ask if the company will help by, for example, suspending your interest payments for a few months. Get into the habit of paying off your cards in full each month so that you don’t have debt in the future.
Use cash instead of credit cards. Using cash or a debit card will prevent you from spending money you don’t have.
Consider getting budget or debt counselling. If you have so much debt that you can’t get it under control through your own efforts, you may want to get in touch with the National Debtline or StepChange for free debt information and counselling. Your assistance programme may also provide budget and debt resources.
Cut back on eating out and takeaway meals. You might save hundreds or thousands a year by cooking most dinners and taking lunch to work.
Save on prescription drugs. Ask your doctor or pharmacist if you could substitute a generic medication for a brand-name drug. For certain medications, it’s more cost-effective to buy over-the-counter than to get them on a prescription.
Review your insurance policies. Think about whether it would make sense to have higher excesses on your car, home or other insurance. If so, you might be able to save hundreds of pounds a year on your premiums.
Cut back on shopping. Stay away from catalogues, shopping centres and your favourite Internet shopping sites until you’ve paid off your debt or met your goals for reducing your expenses. Consider joining a wholesale club like Costco.
Saving more for the future
The best way to save more for retirement depends on your needs and goals. What’s important is to put aside as much money as possible into a pension fund or savings plan, month in and month out, until your retirement. Choose the plan that’s right for you. Here are some options:
Pensions. A pension fund is tax efficient savings plan from which you can access your money at age 55 or above. They come in two forms: workplace and personal. Workplace pensions are available through an employer to all employees between the ages of 22 and the state pension age. The main advantage of a workplace pension is that your employer contributes to the fund as well as you.
Alongside your workplace pension, you may also set up a personal pension which allows you to pay regular monthly amounts or a lump sum to a pension provider that invests the money on your behalf. Personal pensions can be altered as your income changes and they typically provide a range of investment options. When choosing a personal pension, it’s important to shop around and compare charges and investment performance.
ISAs (Individual Savings Accounts). Many people also choose to save for later life using an ISA as this offers a more flexible way of saving. ISAs are available in the form of a Cash ISA, Stocks and Shares ISA or innovative finance ISA. They are different from standard savings accounts in that they do not charge tax on the interest you earn, up to a certain limit.
Savings accounts. Traditional savings accounts pay a fixed, low rate of interest, and the amount required to open a savings account is usually very low. Interest from these kinds of accounts is not tax-free.
Investments. You can find out if investing through stocks, bonds and annuities would be right for you by doing your own research or by talking to a financial adviser.
Revising your savings plan as you get older
Continue reviewing your savings plan. Most experts suggest that you do this at least once a year. You may want to review your plan at the end of the calendar year or when you do your taxes. It’s also a good idea to take a fresh look at your savings plan if you:
- get a raise, bonus, inheritance, tax refund, or another source of income
- finish paying for a house, car, or child’s education
- realise that you may need to provide financial support for an ageing parent
- are thinking about retiring early, reducing your hours, or working part-time
- are facing changes in the economy, such as higher interest rates
Keep looking for new ways to save. Many people retire sooner than they had planned or face unexpected expenses after they stop working. The best way to be prepared is to make a habit of saving as much as you can all through life.