Four of the best ways to boost your retirement pot and two to avoid
PLANNING for your retirement can be a tricky business, and it can seem pretty overwhelming too.
There are certain ways you can boost your savings pot that might work better than others.
With prices continuing to soar, many households might be tempted to put off saving for the future just to afford essentials.
But opting not to prepare could be a costly mistake when you decide to call it quits in the working world.
Simple methods and taking advantage of handy savings accounts can help you boost your retirement income.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, has revealed her top tips for boosting your nest egg, and those that might not work as well.
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1. Get the most from your state pension
The state pension forms the backbone of your retirement income so it makes sense to get the most you can from it, Helen told The Sun.
Brits currently get their state pensions when they reach 67 years old and how much you get is determined by your National Insurance (NI) record.
A minimum of 10 years is needed to qualify and 35 years’ worth of NI credits is needed for a full state pension - which at the moment is worth £203.85 a week or £10,608 a year.
But some people might not get the full amount if, for various reasons, they're missing contributions.
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Helen explained: "Many people have gaps in their record due to time spent out of the workforce carrying out caring responsibilities or because they were unemployed."
You can get yourself a state pension forecast to show where the gaps are on the government website.
If you were eligible for certain benefits such as Child Benefit or Universal Credit during these gaps, then you may be able to backdate a claim for these benefits and get a National Insurance credit and so plug these gaps for free.
For the full list of reasons you may have holes in your record, see our handy round-up.
You can also pay for voluntary NICs to plug the gaps and in turn get you more cash over your retirement.
Plus, for a limited time, you can backfill holes from 2006 to 2016 but the deadline to do this is on July 31.
After that, you'll only be able to top up for the previous six years.
However, it's important you check with DWP before handing over any money as they can confirm whether doing so will actually boost your state pension.
2. Start early
When it comes to pensions, getting in early is key to giving yourself a better chance at a bigger pot.
Helen said: "Pensions are a long-term game and the earlier you can start the better.
"Starting early gives your pension contributions more time to grow and prevents you from having to find space in your budget to make much bigger contributions later."
One of the most beneficial things you can do is have a look at your workplace pension contributions.
Under auto-enrolment, anyone over age 22 who earns more than £10,000 will automatically be signed up to their company's pension scheme.
If you earn less or are younger though, you can still ask to join.
Helen urged: "Make the most of your employer contribution where you can, many employers will only contribute at the minimum level specified under auto-enrolment (currently 3%) but some employers are willing to do more."
This is known as a matching contribution, these employers will boost their contribution if you boost yours.
Over time this can make a significant difference to how much you end up with when you retire.
It is essentially free money from your employer, and you could find your overall contribution increasing without much extra effort from you.
3. Increase contributions where you can
Topping up your contributions to above the 8% limit could make a huge difference when you decide to retire.
Helen explained that putting it to the back of your mind is not advisable.
She said: "It’s easy to apply a 'set and forget' approach to pension contributions but the reality is that you need to contribute more than the current 8% minimum to get a decent retirement income.
"It’s a good idea to assess your finances every time you get a pay increase or move jobs and take it as an opportunity to boost your pension contributions over and above these minimums."
Savings experts have previously revealed that by topping up pension contributions by just 2% more over the course of a career, your pot could go up thousands of pounds.
Of course, making higher contributions would have an even bigger impact on a retirement pot – but even just a 1% increase in contributions would give you a boost.
It's important to note that even if you're already quite far into your career, adding a little extra to your fund each month will help.
If you're unsure how much you can top up, it's best to consult experts and make sure you can afford the increase too.
4. A LISA may be nicer
A Lifetime ISA - or a LISA - could be the answer to your money-saving prayers, but there are some drawbacks.
The LISA was introduced to help young people save for a first home and/or retirement.
They can be a good alternative or addition to a pension for retirement planning.
A LISA can be opened by anyone aged between 18 and 39.
You can use it to save up to £4,000 a year, towards either a first home or retirement.
Savers with a LISA will get a bonus of up to £1,000 a year on top from the government - or 25% of whatever you put in.
You can contribute up until the age of 50 and for retirement purposes, you can access it from 60.
There’s no employer contribution as with a pension but it can operate as a decent supplement to retirement saving for people who already have a workplace pension.
Helen said: "The self-employed could also find it very useful as the bonus works in the same way as basic rate tax relief and they can access the money in times of financial stress albeit subject to a 25% penalty."
That's the downside - if you need to access it for a reason other than for your first home purchase or retirement then you'll be charged a 25% penalty that not only removes the bonus but also some of your hard-earned savings.
Another thing to consider is that due to the age restrictions on when you can take a LISA out and when you can contribute to it - you're limited on how much you can put in over the lifetime of the account.
This is particularly important to note if you're expecting to reach your peak earning potential in your 50s - such as when you reach a higher level in your career.
For a more in-depth look at LISAs and the potential benefits and drawbacks, see our story.
What may not work so well
Relying on property
Something to be wary of when you're planning your retirement is to rely too heavily on property.
Helen explained: "We’ve seen stellar returns from property over the years and this has prompted many people to declare that property is their pension.
"However, be wary of the ongoing costs of being a property owner such as maintenance and periods where property is unoccupied as this could take a chunk out of your returns."
Similarly, the costs of buying and selling property can be high.
"It’s also better to diversify your risk across different asset classes so having your retirement fund invested solely in property could give you a nasty shock if the market turns," Helen warned.
Pensions here, there and everywhere
Chances are, throughout your career, you'll have enrolled in more than one workplace pension scheme.
If this is the case and you actually have multiple then keeping track of them could be difficult.
Helen said: "You may have contributed diligently to your pensions throughout your working life but if you have accumulated several over the years then you may lose track and potentially lose out on valuable retirement income."
She added that recent research from the Pensions Policy Institute (PPI) put the value of lost pensions at around £26billion.
You can choose to consolidate pensions to make it easier to keep track or just make sure your providers have up-to-date contact details for you.
It’s also worth making sure these pensions are working as hard as possible.
"A look under the bonnet may find high fees or lacklustre investment returns," Helen warned.
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Again you could consolidate these pensions into one which offers better features but you need to double-check that you aren’t giving up valuable benefits such as guaranteed annuity rates by doing so.
Meanwhile, savers could be missing out on hundreds of thousands by not making a key move ahead of retirement.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]