Get the best out of your retirement plans
When you take the jargon out of pensions and superannuation, they are simply long term savings plans that has some tax benefits attached. In most countries they are the most tax efficient way of saving over the long term
Compounding growth works its magic, over time
Earning interest on interest is a very effective and simple way of increasing your retirement pot. One simple compounding rule can eliminate years of worry. It can provide a clear goal in your financial life and set your future course. The rule of compound interest is: Your money will double every seven years if it compounds at the stock market’s average rate of return (nearly 11% p.a) over its lifetime. This can provide a bit of comfort to those of us that have delayed our retirement savings!
Factors that will help you maximise your retirement savings
When you are in your 20’s and 30’s it is hard to think about abstract subjects such as pensions and superannuation. However, the sooner you start saving the better. Establish a routine of saving regularly as soon as possible. This will become a habit and should continue throughout your life.
Consider how long you will be working or able to contribute to your retirement savings. Will you take time off to have children? Will you travel and work abroad? in which case you may not be contributing to a retirement plan. You may take time out to pursue a different career, undertake study, set up your own business or take a reduction in salary. Many women take on the role of carers for elderly or sick relative. All these factors will affect your retirement funding.
Contribute your own money to your company scheme
Contribute your own money over and above what is being funded by your employer. In most countries there are Tax incentives for doing this; either in the form of Tax deductions or Tax rebates.
How is your money invested?
Many women do not take enough interest in their retirement savings until they actually approach retirement. By then it is too late to make any significant difference to the size of your retirement pot. Because retirement savings are tied up and out of our reach for a long time, this doesn’t mean that you cannot have control over how the money is invested. Your retirement fund may be your biggest asset after your home. It is therefore very important to be proactive. The amount you save will dictate the type of lifestyle you will have in retirement. Many employee schemes and all personal pensions offer a choice of investment options. But most women DO NOT know how to use these options to their best advantage. Its not rocket science but it certainly looks like it because of all the jargon that is used.
Make the best of the investment options available to you
Whether you have a personal pension or a company pension, there will be a selection of different funds available to link your pension to. Be proactive and regularly review how your retirement funds are growing. As other investments, you may wish to change your asset allocation (the mix of investment funds). Invest in funds that are appropriate for your risk tolerance and time horizon. Find out more about this by watching our Risk Pyramid Video
You should now be familiar with the various asset classes. This will stand you in good stead when choosing how best to invest your retirement savings. The alternatives range from conservative to aggressive. The amount of return you receive will be based on the approach you choose, be it conservative to aggressive. As with any investment, there is a trade-off between risk and reward (investment performance). Before investing you should know what your risk tolerance and time horizon is.
Women tend to be more conservative investors than men
Being overly conservative over the long term can have a devastating impact on the growth of your retirement pot. Your first impulse may be to protect the value of your savings by picking a relatively conservative investment. But consider that you may have to rely on your retirement fund for another 20-30 years, once retired. This a long time. It may be worth considering a less conservative investment mix, such as shares, property and bonds. These will have a better chance of outpacing inflation and providing a higher return.
Consolidate your old retirement funds
If you move from employer to employer, you will have preserved benefits accrued across various funds. If they are "final salary" benefits leave them alone, but if they are "Mmney purchase" benefits look at rolling them over (or consolidating) these benefits into one plan. It is usually more cost effective and easier to keep track of; but be wary of any exit fees that may be payable. Find out more about the different type of company pension schemes here...
I have yet to meet a woman who says she has too much money in retirement! Be realistic about how much you will need to live an active and comfortable retirement. Remember you will have more time to spend money when you are retired. Some women will be able to live well off a modest amount, whilst others will never seem to have quite enough! There are all sorts of formulas that you can use. Realistically it boils down to what you can afford to save. Save consistently over a long period of time. Top up your regular savings with lump sums whenever you can
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