How Much Do You Need To Pay Into Your Pension To Have Your Dream Retirement? -

How Much Do You Need To Pay Into Your Pension To Have Your Dream Retirement?

Planning for your retirement is far from an exact science, whilst you might have very set goals when you start out, life gets in the way, jobs change, stock markets rise and fall and the government has a nasty habit of changing the rules.

But, for those people wanting to start out on the right track there are some simple steps to follow, which will help you work out how much you need to put aside to have your dream retirement.
1. First things first, you need to think carefully about your retirement goals, that means deciding when you want to retire and what level of income you will need to fund your desired lifestyle. Living on some Caribbean island might not be achievable, realism is important here, but allow yourself to dream, just a little!

2. The State Pension is much derided, but for most people it forms a great foundation, albeit we will all have to wait longer to receive it. The starting point for your retirement planning is find out how much you will get and when you will receive it. If your State Pension age is significantly after your desired retirement age you will have to bridge the difference, furthermore if your projected State Pension is below your target retirement income, as it is for most people, that’s another bridge you will have to build. You can get a State Pension forecast by visiting here:

3. Ok, so now you know what the State Pension will give you and you know your retirement income shortfall, both in terms of years before you get the State Pension and the amount you will get.
Now you can start to plan. How I’ll you bridge that shortfall?
Start by looking to see if your employer offers a work place pension into which they will pay, if they do, this is effectively free money, and remember, you will also get tax relief on your contributions. In these tough times every little helps, if your employer will pay into a pension, bite their hand off, even if you have to tighten your belt to make your own contributions

4. But how much should you pay in? This isn’t an easy one to answer, and is based on so many variables, including the length of time until you plan to retire, the growth rate you assume, the charges you pay, Annuity or Income Drawdown and tax rates when you retire. However, an online pension calculator can help you work out what you need to pay in to hit your target retirement age and income

5. So you now know how much of have to pay in to a pension, but big questions still looms, is a pension the right option? Should you use an ISA too? How should you invest your money?
These questions are too large to answer here, but some useful rules of thumb:
The longer you have between when you start to plan for retirement and the date you want to finish work the more risk you can afford to take with your investments.
Also, whilst contributions to pensions benefit from tax relief, the income when you retire will be subject to tax, conversely you get no tax relief on ISA contributions, but the income is tax free; striking a balance between the two is often sensible.
Working out the exact amount you need to pay into your pension is hard, but by following our basic steps you will make a great start to planning for a financially comfortable retirement.

Phillip Bray writes for Investment Sense on pension and retirement planning, looking at how best to plan for that dream retirement, as well as which pension, annuity and income drawdown providers investors should use.
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