How to Save for Retirement

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Retirement is a long-awaited milestone for many people. The time when you have finally paid your dues and can just sit back and relax for the rest of your life.

It is a goal that comes with its fair share of romanticising, but what happens when you make the mistake of not having enough money saved up? This situation can make for a very hard time in your later years, thus it’s crucial to know how to save for retirement.

Unfortunately, there are far too many people who get caught in the debt trap and then by the time they are too old to work anymore, they sit with some serious problems.

Too old to work, still lots of debt in your name, and hardly any money coming in from your retirement funds. Let’s avoid this situation by looking at some of the important points when trying to save for retirement.

How much do you need to retire?

This is the number one question when planning to save for retirement. You need to know how much you will need so that you can work toward that goal.

Some studies have shown that retirement with only the most basic expenses comes to around £10,000 per year in expenses.

A bit more comfortable lifestyle could add up to about £25,000 per year and that would include things like weekly dinners and drinks with friends, few weeks holiday each year, a concert each month and some shopping.

The amount needed to retire will be different for each person. It will depend on things like the amount of outstanding debt at the time of retirement or whether you have your house mortgage paid off or not.

The best thing to do it lay out the maths and calculate how much money you will need to save for retirement, and then work toward that goal.

How much should you save each month?

After calculating how much you should save for retirement, you have a broad idea of your goal amount. This amount should then be built towards by putting money away as often as possible.

A big factor here would be your age. If you are 25 you have much more time to get to your goal compared to if you are 45. So it’s always best to start early, and keep your debt low.

For example, if you have calculated that you would spend £20,000 per year when you are retired, then you would need about £200,000 invested where you can grow your investment 10% per year (after inflation).

In this method, you would be living off only the accumulated interest. Or if the growth rate is lower like 7%, then you should have enough do draw on your retirement for 20 years.

So, if you are 25 now and want to save to retire at 55, then you have 30 years to save £200,000. This comes to around £500 per month that you need to save.

This is just a rough breakdown and there are many better plans and options.

Where to invest your money to save for retirement

To save for retirement you need to put your regular payments into a secure investment where it will grow over time. This investment needs to be safe enough so that you do not take too big a risk with your retirement funds, but also it needs to be of such a nature that it will grow to beat inflation and to increase your quality of life after retirement.

A good investment could even make you retire off only accumulated interest as mentioned above, or it could just increase the amount and duration of which you can draw from your retirement funds.

There are many options when looking at what to invest in. If you are going to choose by yourself, then you best do your research into investment options.

A good rule of thumb is that a diversified profile has more resilience.

Get professional help

By far the easiest way to save for retirement is by getting professional help. Some advisers can walk you through the entire process. This will without a doubt leave you feeling safe and secure about the future, but of course, it will come at a fee.

Professionals are a great option because not only do they know exactly what to take into account, but also, they know of the best options when it comes to long term saving and investment options.

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Categories: Personal Finance
Tags: How To