Saving and planning for retirement is one of those things in life that we often let pass us by. When we're young, it's easy to think that retirement is a long way away. However, life can sneak up on you, and before you know it, there's a pressing need to do something about the future and put some money away for your retirement before it's too late.
According to figures from the government, almost 12 million people are not saving enough for their future in the UK, potentially leaving themselves with a quality of life lower than desired when they retire.
Thankfully, the last couple of years have gone a long way to change what has been something of an issue for years. The government's early pension changes that saw companies required to auto-enrol their employees on a pension scheme came into full effect last year, and it made younger people in particular more aware of their need to save for the future than ever before.
However, as people become more and more aware of the need to save for the future, the government has also made it possible for them to look at alternatives to the traditional pension scheme. With higher returns possible in other assets and investments, it's always best to make sure you weigh up your options and choose the best one for making sure your money works for you in the future.
New pension reforms due to come into play on April 6th will grant savers far better choice and flexibility than they have enjoyed in the past. From the age of 55 onwards, those with pension savings will have full access to their money. No longer will you be given one chance to take a lump sum with just 25 per cent tax free. From April, you will be able to dip in as you wish with the same tax restrictions applying. It means you are in control of your own money.
This takes away the need to buy an annuity to support you in later life, and gives you the chance to take your money out of a pension pot and invest it elsewhere in an alternative asset, where you can enjoy far better levels of return and give yourself a better fund for your future. Careful retirement investing with a diverse and balanced portfolio can bring you a healthy profit that will stand you in good stead down the line.
The simple answer when it comes to when you should start investing for retirement is the earlier, the better. Traditionally, people weren't thinking about their retirement until they were in their late 30s or even into their 40s. However, reforms have brought the simple concept of retirement saving to people in their 20s, and it stands to reason that the earlier you save, the more you will have tucked away for when you finally retire.
It's also important to consider your financial position, however. People in their early 20s will often have a large chunk of their income going towards things like student loan repayments and the clearing of credit card and overdraft debt. At this stage, it can be pertinent to pay into your auto-enrolled pension scheme, in which your company is matching your payments. This means you are at least saving a little, and every little does help.
However, once you're financially stable, the old adage that it's never too early to start really will come into play. If you are saving from your late 20s, you'll have up to 40 years of saving ahead of you to make sure you have a rather attractive little pension pot to look forward to.
Again, this is a question that comes with a relatively simple answer - it's always best to invest as much as you can without incurring tax penalties. After all, these only eat away at your potential income.
At present (as of April 2015) you will be able to invest up to £15,240 per year in ISAs, for example without being hit by taxes. But remember, this can change over time, and it's important to keep touch with regulations year after year to see if you need to change your strategy and steer clear of being hit by taxes.
Speaking to a financial advisor can also help you to decide how much to put away. Talk to them about how much you would ideally have per year in retirement, and they can advise you on what your pension pot would need to be worth to achieve this. Then, based on your desired investment assets, you can make an informed decision about how much you need to feed into your savings.
Buy-to-let investment is the jewel in the crown of the investment market at the moment, and with the right property, you can make impressive returns over an extended period. The asset typically delivers returns of between six and seven per cent, but this can increase to as much as eight to nine per cent for student investment.
The real benefit when it comes to putting your money into buy-to-let, and particularly the student sector, is that it is pretty much evergreen. You can buy stock and then just enjoy a steady income that will not only allow you to save for the future, but also bring in an income even into your retirement.
Another real positive of the buy-to-let market is that it can be a passive, hands-off approach to saving. With a property management company on board, you really don't have to do much with your investment. Once you've bought the property, often as part of a large development, the company deals with maintenance and letting, which allows you to just enjoy the returns, which are often guaranteed for a set number of years, giving you additional peace of mind.
ISAs are an incredibly tax efficient way to invest your money for the future, and they offer you the chance to build up a sizeable fund through an alternative method to pensions and annuities.
ISAs are far more flexible than traditional pension schemes, offering open access to your savings at all times. New ISAs will also permit you to take out a lump sum if you need it for something and then repay it in the same year without the repayment counting towards your ISA limit, which makes them an attractive proposition.
ISAs may not be as lucrative as buy-to-let, what with an annual interest rate of up to three per cent, but the fact you are able to save up to £15,240 per year in these accounts without having to pay tax (remember to calculate income tax on any buy-to-let investment), means you will be able to keep more of your money. They also offer a far simpler way to save. For those who would rather have a hands-off approach to retirement income, ISAs offer a way to put money aside that is not complicated and easy.
When it comes to alternative investment options for people saving money for their retirement, there's not much more alternative than the increasingly popular, but still largely unknown, peer-to-peer lending platforms now offered. So what are they? In essence, it's the same as a savings account, but without the bank involved.
What happens when you put your money into a savings account is that the bank will use your money to provide funding for loans to companies and individuals in order to generate your interest payments. However, with peer-to-peer lending, the bank is taken out of the equation entirely.
It means that you are lending directly to those looking for loans. It may seem like something that comes with a high risk, and while there is an element of risk involved, it's not actually that large. You split your money between a number of borrowers to minimise the chance of defaults, and according to Zopa, the largest peer-to-peer lending firm, no one has yet lost any money through using the service.
The big upside for savers is that investing this way can bring rather impressive returns. While saving with a bank will net you around two to three per cent on average, peer-to-peer lending can help you by bringing in in excess of five per cent in interest, which allows you to make more for your retirement fund.
Shares are probably the most intimidating of all investment options. After all, we probably think of stock exchanges and trading floors, filled with knowledge and investors who really know what they're doing. For someone with limited knowledge of shares, it can be a very confusing market to breach, which will mean many choosing to steer clear. However, it doesn't need to be all that complicated to see success.
There are so many types of investments in shares out there, but the best way to invest in shares for those who want an easy solution is to look towards multi-manager funds, which own a wide range of shares, bonds and other income-producing assets on their own. You simply buy into these funds and generally let your money do the rest, as they are very low maintenance, making them ideal for people without a financial background.
The fact that these funds come with a diverse range of assets means they are generally more secure. Sure, they may not offer the sorts of high returns you can get in the more focussed funds, but they protect against falls in certain sectors by spreading your money around. And the returns are not bad either. For something you need very little contact with, multi-manager funds can bring in between four and six per cent in returns.
As well as taking the time to make sure you know what investment option is best for you, there are other factors to consider before you start considering retirement strategies and investing.
When you're looking to make money, it's tempting to go for the biggest returns and the fastest increase in your fund, but as long as you've started saving for retirement early enough in life, you'll have plenty of time. Long-term investments are usually lower risk, so the chances of you losing money are lowered and you'll still end up with a very nice little pension pot for your retirement.
If you can afford to, it's good to spread your money across a few assets. It means you benefit from rises in one area while also lowering the chances of you losing cash if a certain asset's value drops suddenly.
It's important never to rest on your laurels. Markets, by their nature, will change over time, and you need to make sure you keep track of what's hot and what's not to give yourself the best chance of strong returns. Try to review your retirement investments strategies every couple of years so you can react accordingly.