Retirement has a funny way of feeling both far away and closer than you’d like, often at the same time.
When you’re in your 20s or 30s, it can be tempting to push it to the back of your mind. There’s your mortgage to think about, your children to raise and plenty of other financial demands competing for your attention. And then, suddenly, you’re in your 50s, wondering whether you’ve done enough.
The good news is that building a comfortable retirement pot isn’t about making dramatic financial sacrifices. It’s about making smart, consistent choices over time. Here are five practical tips to help you make the most of your pension, savings and investments and build the retirement nest egg you deserve.
Tip 1: Start earlier than you think you need to
If there’s one piece of retirement advice worth taking to heart above all others, it’s to start saving as early as you can.
The reason comes down to compound growth. When your pension or investments generate returns, those returns get added to your pot and begin generating returns of their own. Over decades, the snowball effect can be remarkable.
To put some numbers on it, someone saving £200 a month from age 25 and stopping at 35, having contributed just £24,000 in total, could still end up with a larger pot at 65 than someone who saved £200 a month from age 35 all the way through to retirement, contributing three times as much over three times as long. That’s the power of starting early.
Of course, not everyone takes this kind of advice on board at 25. So, if you’re starting later, don’t be disheartened. Some strategies work at every life stage, and a later start with larger contributions can still achieve excellent results. But if you’re younger and retirement feels like a distant concern, this is your nudge to take it seriously now, while time is still firmly on your side.
Tip 2: Don’t leave free money on the table
Most employed people in the UK are automatically enrolled into a workplace pension scheme, with their employer contributing alongside them. Yet many people pay little attention to how much they’re actually putting in, or how much more their employer might be willing to contribute.
Many employers will increase their pension contributions if you increase yours, up to a certain limit. So, if your employer offers to match contributions of up to 5% of your salary and you’re only contributing 3%, you’re effectively leaving part of your salary unclaimed. Over a career, that can add up to a significant amount.
Tax relief is the other piece of free money that’s easy to overlook. When you pay into a pension, the Government tops up your contribution based on your Income Tax rate. A basic rate taxpayer contributing £80 into their pension will see £100 land in their pot. Higher-rate taxpayers can claim even more back through their self-assessment tax return.
It’s not complicated, but it’s easy to ignore. Making sure you’re capturing your employer match and your full tax relief entitlement is one of the simplest wins in retirement planning.
Tip 3: Increase your contributions gradually
Committing to increasing your pension contributions a little each time your salary goes up is one of the most effective retirement planning strategies, but also one of the least glamorous.
It sounds straightforward, but the psychology behind it matters. When a pay rise lands, it’s human nature to adjust your lifestyle to match your new income. If you commit in advance to directing a portion of your future pay rises into your pension, you’ll barely notice the difference to your take-home pay, but your retirement pot will.
Even small, incremental increases can have a meaningful impact over time. Boosting your contributions by just 1% of your salary every year or two might not feel significant in the moment. Yet compounded over a 30 or 40-year working life, the difference to your final pension pot can be substantial.
Some workplace pension schemes allow you to set up automatic contribution increases, making it even easier to do without having to think about it. If yours does, it’s worth taking advantage of.
Tip 4: Track down and tidy up your old pension pots
If, like many people, you’ve worked for more than one employer over the course of your career, there’s a reasonable chance you have pension pots sitting with providers you haven’t thought about in years.
This is far more common than people realise. The Association of British Insurers has estimated that there are billions of pounds sitting in lost or forgotten pension pots across the UK. Some people have no idea how many pots they have, let alone how they’re performing.
Leaving old pensions unmanaged can create problems. Some older workplace schemes carry higher charges than their more recent equivalents, quietly eating into your returns year after year. Others might be invested in funds that are no longer appropriate for your circumstances or attitude to risk. And if you’ve moved house a few times without updating your details, there’s even a risk of losing track of them altogether. The Government’s free Pension Tracing Service can help you track down any lost pots.
Consolidating your pensions into a single, well-managed plan can make life simpler. It’s easier to keep track of your overall position, and it can reduce the fees you’re paying across multiple providers.
That said, consolidation isn’t always the right move. Some older pension schemes carry valuable guarantees that could be lost if you transfer out, so it’s important to get professional advice before making any decisions. This is an area where speaking to an experienced financial adviser can make a real difference.
Tip 5: Think beyond your pension
A pension is the foundation of most retirement plans, and for good reason. The tax advantages are hard to beat. But a pension alone doesn’t have to be the whole story.
Building up savings and investments outside of your pension can give you much greater flexibility in retirement, particularly when it comes to managing your tax position. Stocks and Shares ISAs, for example, allow your money to grow and be withdrawn free of Income Tax and Capital Gains Tax, a useful complement to pension drawdown, which is taxed as income.
Other assets can also play a role. Property equity, whether through downsizing a family home or buy-to-let income, forms part of the retirement plan for many Leicester residents. Investments held outside of ISAs or pensions can provide additional flexibility, though they come with their own tax considerations.
The goal isn’t to overcomplicate things, but to avoid putting all your eggs in one basket. A broader mix of assets gives you more options when it comes to drawing an income in retirement, and can help you manage your tax bill more efficiently year by year.
How BDWM can help
Building a retirement nest egg looks different for everyone. A 28-year-old just starting out has very different priorities than someone in their late 50s looking to make the most of their final working years. And what works well for someone else might not suit you at all.
At BDWM, we help Leicester residents at every stage of their retirement planning journey. Whether you want to review your existing pension arrangements, track down old pots or build a joined-up retirement strategy that brings your pensions, savings and investments together, our team of experienced advisers is here to help.
We take time to understand your situation and your goals before making any recommendations, and our initial consultation is completely free, with no obligation whatsoever. Get in touch today to start building a retirement plan you can feel confident about.