Making the right decisions about your retirement can be a minefield. But what are the top five most common pension mistakes?
Not Saving Early enough
It’s not surprising that, for most people in the UK, saving for retirement is the last thing on their minds, particularly when young. Meeting the mortgage payments every month and raising a family push pension planning very much to the back burner. Before they know it, the time has slipped by, and it’s a mad dash to get their retirement affairs to have some semblance of a future.
Getting into a savings habit early in life is key to building a healthy pension pot. Its easier to grow a significant level of savings over a longer period. The more you delay, the costlier it will get.
Not Saving Enough
Most people underestimate how much money they need to have in their pension pot to have a decent retirement income. Someone looking to achieve an income of £27,000 a year at retirement would need a pension pot of around £500,000. It’s important to do pension health check with an Independent Financial Adviser early to establish exactly how much you should be saving to get the retirement income you need.
Opting Out Of Auto Enrolment
When you’re struggling to make ends meet, it’s tempting to opt out of a workplace pension scheme, where a chunk of wages is deducted each month. However, if you do that, you could be missing out on free money. Not only are you adding to your workplace pension each month but your employer is also required to add a percentage too, and there are also tax benefits. While it can be challenging to lose precious income when money is tight, you won’t regret it down the line.
Relying Solely on Your State Pension
While past generations have relied solely on their State Pension for income, the International Monetary Fund warns against it. They have estimated that the average life expectancy of 65 will increase by about one year every decade. If you are still young, there is unlikely to be enough taxes paid into the system to support the ageing population by the time you retire. With that in mind, saving towards your personal pension is essential if you want to guarantee an income in the future.
Cashing In Your Pension Early
Accessing your pension earlier than the state retirement age may seem like an attractive proposition, especially if you are facing hard times. Before considering this route, think very carefully, as it may compromise your retirement possibilities. You’ll also likely get much less back of its real value, particularly when you have to pay 75% of it in tax.
Senior Independent Adviser at Fix My Pension, Andrew Collyer Worsell said, “If you don’t know what you are doing, planning for a pension can be fraught with danger. It’s always best to seek advice from an Independent Pension Adviser before making any costly decisions.”