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The lowdown on saving for retirement

April 4, 2016

banking

 

At the tender age of 23 years old, I still can’t believe that I am thinking about this already – retirement.

Image by Horia Varlan

I’ve just started my career, but I’m already thinking about the day when I finally get to down tools and relax. Granted, it’s not for another 45 years or so, but hey! A girl can dream, right?

There are several ways you can save for retirement: either through a company or personal pension, or via investments, bonds or traditional savings.

An old-school company pension is where your employer takes a cut of your pay and puts it into a fund. It’s not linked to investments, so you are pretty much guaranteed a steady income when you retire.

However, such pensions are expensive to run and as a result are getting quite rare. It’s more likely you will be contributing to a pension scheme that does involve investments in some shape or form.

With an investment pension, you basically contribute a set amount of money each month to an investment fund manager, who (you guessed it) invests your money in promising stocks and shares to get a decent return.

This can be organised through your employer, however unless they’re making a decent contribution themselves, it’s always a good idea to have a sniff around elsewhere.

You can get individual pensions or investment ISAs, which offer thousands of funds to choose from. Just remember to do plenty of research to ensure that the fund you choose will work hard for you.

Okay, okay, I know what you’re thinking. “Shares and investments” has become a bit of a dirty word since the huge crash a couple of years ago, but in reality the stocks ‘n’ shares route is still a pretty solid way to deal with your money long-term. You can expect to gain about 2-3% every year on top of inflation, and while it’s not as big a return as the 9% or so that was expected pre-bust, it’s certainly better than a kick in the teeth.

The alternative to shares is bonds, where you lend your money to governments and companies, and in return they pay you interest. However, after running costs are deducted, your gains will eventually struggle to keep up with inflation.

The lowest risk investment out there is inflation linked savings accounts, however, remember to keep a separate emergency saving account in case you need quick access to some cash.

However, remember that your pension isn’t the be-all and end-all – it’s worthwhile to check out life insurance quotes to see if you can leave something behind for your loved ones after you go.

So now that you’ve decided how to save up for your golden years, how does your strategy shape cup compared to the rest of the UK? This infographic from Confused.com reveals how Brits save up for their retirement:

Pounds and pensions infographic
Brought to you by Confused.com – Find yourself a great savings account

How do you plan to save for retirement? Let us know in the comments section below.
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