Responsibly managing your day to day financial affairs is challenging enough, but effective money management goes beyond your short-term needs. Planning also extends to long-term financial goals, such as home ownership, leisure travel, building a family, investing in a business, and ultimately, retirement.
Each person treks a unique financial path, so retirement plans are as distinct as they individuals they protect. Despite the personal nature of retirement planning, there are guidelines to follow, helping you stay on pace for comfortable retirement. And since circumstances frequently change, your finances deserve periodic review – including your retirement savings and pension accounts. You may need to change your thinking to better prepare for retirement, especially facing policy updates, work changes and other financial impacts.
How Much Do You Need?
Like other aspects of finance, retirement planning conditions change. People retiring today do so under drastically different circumstances than their children will. And there is no telling what retirement age and pension provisions will look like two or three generations from now. Generous final salary pensions, a key benefit shared by many of today’s retirees are no longer sustainable for companies, so they have been largely eliminated for younger workers. The valuable safety net provides retirement income based on salary levels during prime earning years. As a result, current retirees are leaving the workforce with benefits guaranteeing 76 per cent of the incomes they took home while they were working.
These generous pension provisions are a thing of the past for most. For comparative purposes, analysts now consider an adequate retirement nest egg to provide at least 70 per cent of a person’s earnings during work years. To reach this relatively conservative retirement threshold, young people entering the work force are advised to contribute at least 18 per cent of their earnings toward a pension.
When Challenges Interfere
The disappearing retirement safety net is not unique to the UK, but young workers face additional challenges here. Not only are pension provisions tightening, but the cost of living is also rising. With inflation on its way up, British salaries don’t go as far as they once did, sending some earners to short-term lenders for help between paychecks.
If an eighteen per cent pension payment is beyond what you can afford, you’re not alone. The figure dwarfs the actual amount of money people are really putting in UK pensions. Even counting the employer and government shares, pension contributions currently come to only 2 per cent of earnings. Mandates insist the level rise to at least 8 per cent for auto enrollment by spring of 2019, which lags substantially behind the 18 per cent pace recommended for adequate retirement.
The stark reality for young earners is that even opting-in can leave them with dismal prospects for a comfortable pension-funded retirement. Looming Brexit uncertainty adds another wild card to the mix, making things harder for anyone planning for the future. Unfortunately, low investment returns, stagnant wages and higher prices are only a few of the challenges facing a workforce in need of a boost.
Lifting future prospects for workers may require moves such as these proposed interventions:
Push auto-enrollment forward by escalating the level of contribution alongside salary increases, automatically prioritizing retirement savings as income grow.
Protect zero-hour contract workers and other vulnerable members of the work force.
Educate consumers about investing, saving, and responsible financial management.
Comparing your progress to others in your age group can help you measure your own level of success saving for your golden years. But you shouldn’t look back; it is never too late to improve your outlook. Whether you are closing-in on retirement or just getting started building a financial foundation, private pensions and other investment opportunities can help supplement your national pension, giving you a run at retirement stability. If you’re young, expect to work longer and contribute more than your parents did. And if you are among the last of an aging work force protected by a final salary pension, use the well-earned benefit to build a comfortable retirement.