A new year presents an excellent opportunity to reflect, review and plan ahead. Our decisions will shape our financial future to a great extent, so what a better time to take a close look at our retirement plans, assess where we stand with our goals and take actions to increase the chances of achieving them.
Here are five simple ways that can help you boost your pension savings and, ultimately, the income you will have during retirement.
1. Take advantage of pay rises and bonuses
Consider increasing your contributions gradually, every time you get a pay rise. For example, if you receive a 3% pay rise this year, consider keeping 2% as income but direct the remaining 1% into extra pension contributions. If you repeat this in successive years, you will have much higher chances of reaching your savings goal without having to forego a significant part of your disposable income in one go. If you get an annual bonus, you can consider paying all or part of it into your pension too.
The great thing about any extra amount you pay into your pension savings is that it enjoys a tax relief so if you are not already utilising your tax allowance to the maximum, you get to save a larger amount into your pension account than what you would have otherwise received as income.
2. Pay in more when a regular expense ends
You can increase your contributions to your pension account when a regular expense comes to an end. For example, when you pay off a loan, you can redirect the amount you used to pay as loan instalment into your pension savings. You are not used to having this money at your disposal so your spending habits will not be affected, but your pension savings can greatly benefit from it.
3. Maximise your employer’s contributions
Some employers will match your contributions up to a certain level, so if you pay more into your pension, they will too. This is essentially free money and a great way of increasing contributions into your pension account. Check the terms of your employer’s pension plan to make sure that you are taking full advantage of any matching provision.
4. Delay accessing your pension
The longer you wait before accessing your pension account, the more time your savings have to grow. So even though you can receive your accumulated pension savings when you change employer, resisting the temptation and instead leaving it invested until retirement can make a big difference to the retirement income you will eventually receive. If you are happy to do so, you can also consider delaying your retirement or using alternative sources of income for a period of time to give your savings a longer time to grow.
5. Make sure you are invested in the right strategy
Where your pension savings are invested can have a huge impact on what you will get back when you retire. So, think about where your pension account is currently invested. Does your investment strategy match your investment horizon, your investment objectives and your appetite and tolerance for risk?
Generally, the longer your time horizon, the higher the risk level you can assume, as you have the time to ride out any periods of short-term market volatility and recover any losses. So, if you are a long way from retirement, consider investing in assets with a higher potential for growth but also greater risk.
On the other hand, the closer you are to retirement, the less risk you should be willing to take in order to preserve the value of your pension account. Therefore, as you are nearing retirement, consider adjusting your portfolio towards lower risk assets to protect your savings against sudden market movements when you need it the most.