It’s a pity there aren’t any competitions that produce savings champions like England’s Lionesses this summer. Their success has added momentum to the call for equal access to football for girls at school.
We could do with a similar injection of impetus for financial education in the curriculum, perhaps now, more than ever in the last generation.
The ABC of finance
Of course, I’m not talking about turning people into investment experts, but giving individuals a grounding in a subject most will say they simply don’t understand. And because they don’t understand it, anxiety makes them more likely to put off making important decisions.
For this reason, finance should be considered as important as sport at school, because I believe a basic level of financial literacy provides individuals with the capability to improve not only their wealth, but their health, both physical and mental.
Think about it. Stress accounts for more than half of the millions of lost working days in the UK, but very rarely will the workplace be the only cause. Money is often the biggest concern.
Saving for the time after work
~Novel Serialisation: Heavens Fire~
Taking control of one’s finances can seem daunting, and using an adviser can help you find your feet. An adviser can do far more than simply sell products. They can identify the risks you face, how these risks might be addressed and help you adopt good habits, such as saving, including what you can save and why.
And it’s the why that is particularly important. At some point, saving will be unaffordable for almost everyone. But once debt is reduced, or salaries rise, people should look to save more. In many instances they do. Yet, they often focus on big projects, such as a car, a mortgage, a wedding or school fees. However, these are all more immediate needs, and ones that tend to push saving for retirement down the agenda. They should also prioritise putting away the funds they need for later life too.
You don’t (necessarily) need an adviser to adopt good habits
People already manage a complex spending plan, with considerable financial commitments, as access to credit allows them to plan into the near- (credit cards), medium- (car loans) and long term (mortgage).
Retirement saving is simply about having enough money at a time you can no longer, or perhaps, do not wish to work. Trying to save cash for this over a short period of a decade or even two can be challenging, so investing even a small amount of savings for retirement into a pension as early on in your career will reap dividends over the long term.
And while an adviser can help you to get the most out of your retirement savings and plan ahead, you don’t need one to start making some simple decisions to plan for retirement. There are four simple foundations anyone can put in place to build a better retirement income.
– Getting started: The best place to start, as with any journey, is to set a destination. How much income do you think you will need whenever it is you think you may stop working? Setting a target cashflow will give you an excellent idea of how much you will need to save – and how long you will have to do it. Remember, your expectations will not be met by the state pension.
– Saving smarter: Using tax efficient products – for instance ISAs and pension funds – to start saving for the future offer greater flexibility. While pensions are locked up until you are 55, ISAs can be accessed if you need the cash.
– Accept help where offered: Every employer must now enrol workers in a pension plan. However, I meet many clients who have decided to opt out to save money for the here and now. Doing so could see you missing out. Your employer will also be contributing near or sometimes as much as you into a workplace pension, while some employers offer more generous amounts. Then, the government tops it up with a tax credit. That’s free money that you haven’t had to earn, or pay tax on, and a valuable benefit worth far more than the initial sum invested when it comes to retirement.
– Review regularly: Any long journey requires the course to be checked and recalibrated regularly. Saving is no different – and retirement could be as long as your working life, if not longer. Regular adjustments will offer reassurance that you remain on course. It may also prevent any nasty surprises.
Fail to prepare, prepare to fail
This last point is particularly important. Reviews not only confirm where you are, but also help to avoid nasty shocks. They may even protect you against yourself.
Inertia can be as large a risk as any other, and how many times have you made no decision for fear of making the wrong choice? This is equally important as you move into retirement, as a long established plan may no longer be suitable once you start to take money out of your investments. Circumstances change, and you may need to cut your cloth accordingly.
Having confidence in your planning for retirement is essential if you are to avoid the stress that comes from worrying about the future.
You might not need an adviser, that could be true. But I would argue the benefit of having an expert to conduct regular reviews of retirement provisions, including how they are performing, and to ensure your retirement goals remain not only achievable, but on track, can make a big difference.
In the current economic environment, the only thing we can be sure of is instability and rising inflation. Having an adviser on your team will not only improve your chances of achieving your ambitions successfully, but is likely to bring you considerable peace of mind on that journey.
By Peter Cranwell, IFA at Purely Pensions
