Saving for retirement or putting money away in a pension scheme is something we never tend to think of naturally. It is a thing that we usually associate with old age and retirement. Though it is definitely something that will be used only after you actually retire from work, what is important is to save for it when you are still young, hale and hearty. The sooner you start to save the more you will end up saving finally, which will ensure financial comfort in your old age.
Generally, you are advised to save up for retirement or else issued warnings of a looming financial crunch or worse still poverty. Ideally saving for your retirement should start as early as you start working. If you begin making contributions say by the age of 22 then you can get about 30 or 40 years of investment returns, make it much more sizeable than those made in the last five years of your working life.
Before choosing a pension product, it is worthwhile to spend time researching the different products in the market rather than going about by blind recommendations. Pension contracts generally last for about 25 years or more and hence you need to be sure that the product will be able to cater for changes in your lifestyle. Also you may not need as much money you need now, at that age because your needs and wants will be fewer, though your savings should be such that they tide you over the rising inflation.
How to decide on how much should you save?
One method is to decide on affordability and other priorities, where in you put in as much as you possibly can keep in view your other commitments. You need to decide on where to draw the line between luxury and necessity.
The second method is whereby you can actually work out a more definitive figure that you can comfortably live with in your old age. This gives you a better perspective of how much you would need to save to achieve that figure. There are several factors, which affect this -
- Age
- Savings till date
- Gender. Since women seem to live longer than men, they will need a bigger pension saving.
Types of Pensions
There are three basic types of Pensions -
State Pensions
- The state pension includes Basic State Pension, the state Second Pension and Pension Credit. The amount of pension you will get from the state is decided partly by your record of National Insurance contributions.
Occupational Pensions - Occupational Pension Schemes are those run by your current or former employers.
Personal Pensions - Self-employed people or those choosing not to join an occupational pension scheme, may take out a personal pension plan.
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