Start Saving For Retirement As Soon
When you start saving for retirement you will be better off financially when it is time for you to retire.
These days, it's not safe to assume that there will be a system like State Pension to provide for all your needs when you retire. Even if there is, it's unlikely that it will be enough to live on in the same kind of lifestyle that you are used to.
Saving money for your retirement the moment you start earning is one of the wisest things that you can do with your money. That's because the sooner you start saving the more time your money has to grow. There are even ways to start saving for retirement much earlier.
How to actually start saving
How does someone just starting out in their career - or for that matter someone of any age - go from wanting to prepare for retirement to actually start saving for retirement?
I have three suggestions:
1. Just automate the whole saving for retirement process
Unfortunately, for many people saving doesn't come naturally anymore. They don't start saving for retirement.
Instead they 'suffer' from a common habit. They believe that one must ‘spend, spend, spend’, using credit cards or other forms of credit, in order to enjoy life to the fullest. These people have the mindset of the 'hyperspender'.
Hypersenders believe that buying certain products and services have a direct influence on their happiness. Whatever it is, they need to have it NOW, whatever the cost. Without it they are unhappy, in fact extremely unhappy.
If easy borrowing is getting in the way of saving for retirement, then maybe you need to kick the plastic habit and operate on an earned cash basis only for awhile.
It’s only once you realise that you can’t spend your way to a comfortable retirement that the ‘hyperspender’ mindset in you starts to shift - your spending adjusts accordingly – and you move away from wanting to prepare for retirement to actually start saving for retirement.
However, even if you possess the willpower to forego pleasures today for Put your savings on autopilot!
a payoff tomorrow, exercising it on a consistent basis can be tough considering that affording even the necessities these days can be a challenge.
The most effective way to start saving for your retirement is to automate the whole process.
If your employer offers a pension scheme enrol in it so that money flows automatically from your salary into your retirement savings account before you even get a chance to spend it.
From 2012 onwards, companies will start to automatically enrol employees into their workplace pension schemes, unless the employee actively opt-out.
If your employer currently doesn't offer a pension scheme, then open a Self Invested Personal Pension (“SIPP”) plan. Again put it all on autopilot - have money automatically transferred from your bank account to your SIPP account and let your SIPP provider invest it in a fund each month.
2. Overcome any hurdles – your retirement is at stake!
Unfortunately, some people never get around to start saving for retirement because the whole process just seems too complicated to them.
Deciding how much money to put away, which investments to choose, how much to invest in each one of them...The number of choices can feel overwhelming and lead to paralysis.
Not doing anything is just no option!
When setting up your retirement savings plan don’t get bogged down by any hurdles at this stage. The most important thing is to get through the process, as soon as possible.
If you sign up for your employer’s pension plan, contribute at least enough to get the full employer match. Can't manage that? Then start with a percentage of salary you can handle, even if it's just 5% or less. If you take the SIPP route, pick a monthly amount you know you'll be able to sustain.
As for investing, at this stage, keep it simple there too.
If you're uneasy about choosing investments, go with a balanced fund or split your contribution between a total stock market index fund and a total bond market index fund or between a large-cap stock fund and a diversified bond fund. Or for that matter, just stick the money in a cash-related fund until you find a better place.
3. Saving more now leads to more retirement savings later
Not exactly a revolutionary idea, true, but it's surprising how much more you may end up with by upping the percentage of salary you put in your retirement plan.
Always consider increasing your contributions as you progress in your career and earn more money.
Rather than trying to pick better funds or adopting a more growth-oriented investment strategy, simply raising your monthly contribution may have a much larger impact over time.
You can have the greatest funds, but it doesn't mean much if you have only a small amount of money in your retirement savings plan. So, try to increase your savings effort as well when possible.
Only in later years, performance starts to matter. As your pension pot starts to bulk up, better returns can mean more than bigger contributions because those returns are on a much larger balance.
Set your priorities – save to the max, then allocate
Great, you have started saving for retirement. The next step now is to salt away as much as possible.
Contribute at least enough to get the full employer match - anything less and you're leaving money on the table. If you can't manage that all at once, increase your contribution by a percentage point a year.
Eventually you want to be contributing at least 10% of your salary and, if you are investing via a SIPP, if you can, contribute the maximum annual contribution.
Next, focus on your mix of shares and bonds, funds and ETF’s. A number of studies show that asset allocation has a bigger impact on returns than the specific funds you hold.
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