If you plan to retire on the State Pension alone, you could be in for a shock. The current provision is just £8,546 per year which, according to several different sources, is only a third of what you need to be able to afford a comfortable retirement.
So, if you want to boost your retirement savings, it will pay to plan ahead. With this in mind, here are three financially savvy things you can do today to avoid living off just the State Pension.
Pay down debt
Firstly, if you’re saving for the future, eliminating all of your debt will make the process much more manageable. Paying interest on outstanding debt doesn’t make any sense when you’re trying to save money, especially with interest rates where they are today.
According to Moneyfacts, the average credit card interest rate (APR) today is 23%. These high-interest charges can quickly turn a small loan or credit card spend into an unaffordable liability. Meanwhile, the average savings account interest rate is around 1%.
In my view, it makes little sense to be paying extortionate interest charges to lenders while struggling to save for the future. So, if you want to avoid living off the State Pension, I reckon the first thing you need to do is pay off any outstanding debt.
Make a plan
Setting yourself a goal, as well as a roadmap of how to get there, is another small change you can make to your life today in order to avoid living off the State Pension.
As the saying goes, if you are failing to plan, you are planning to fail. It doesn’t take much time or effort to set out your retirement planning goals. For example, according to my figures, you only need £30 a week, or £130 a month, to build a pension pot worth £230,000 over the space of 35 years — that’s assuming a rate of return of 7% per annum (the average annual return of the FTSE 100 over the past decade). A pot of £230,000 is enough to double your State Pension.
Once you sit down and break out the numbers, setting a pension goal and roadmap to retirement can help you ensure you’re able to retire comfortably. The sooner you start, the better.
Use help
My third and final tip is to make the most of all the tools and benefits available to you to turbocharge your pension’s growth.
The government has tried to make it as easy as possible for savers to put money away for the future. with products such as Self Invested Personal Pension plans (SIPPs) and Lifetime ISAs (LISAs). Both of these products offer savers cash bonuses when they add funds, as well as shielding money saved from the tax man.
It makes sense to make as much use of these products as possible because the extra tax bonus, coupled with tax immunity, can boost your pension pot by several percentage points every year.
Why pay more when you don’t have to?
