All the experts tell us that the most important thing about a pension is to start saving early. But the reality is that many people, for plenty of good reasons, simply cannot save for retirement in their early working years. So what can they do to improve their prospects as retirement draws closer?
Start Where You Are
OK, so you didn’t start saving for a pension in your 20s. It is no good just bemoaning that omission. Now is the time to do what you can, not to worry about what you cannot change.
Start by having a good hard look at your finances today. Analyze your income and expenditure and work out where the money is going. Look for every way to divert money from unnecessary spending into retirement saving. There may still be more urgent priorities, like paying off credit card debts, but even a small amount put into a pension fund will get you going in the right direction.
Maximize Your Savings
Pension saving is a special category of finance, due to extra help that you can get from both government and employer.
If you pay into a 401(k) scheme through your company payroll, that money goes into your pension pot free of tax. Moreover, your employer may well make a matching contribution. There will be a limit on the amount of matching contribution the employer will make, and there is a limit on the total amount that can be put into a scheme in any one year, although over-50s can contribute an extra “top-up” amount.
It is well worth your while finding out exactly how much your employer will contribute, and take as much advantage as you can.
Instead of, or as well as, a 401(k) scheme, you might consider putting your money into an Individual Retirement Arrangement. These are not managed by an employer, so there is no matching contribution, but they are transferable between jobs and often have lower charges.
Using Your Home
If you own your own house, this is a good source of potential to help with your retirement. One option would be to downsize and to release some of the equity that you have. This can help you with your expenses (although it would be a finite resource) or be invested into a means to increase your income. Try to keep track of the equity that you have as you approach retirement.
Property can also generate income, for instance by taking in rent-paying boarders or running a small bed-and-breakfast business.
Saving on Your Car
As well as earning in retirement, you can make a hobby out of saving money. The costs of running a car are often underestimated by those who are used to a company car. A good way to build a rewarding hobby that will also save money is by learning how to maintain and repair your own car. Good manuals are available for all makes of cars; for instance, fans of Swedish technology who get hold of a Volvo service repair manual can do a surprising amount of their own work.
Retirement is not necessarily a time to stop earning money altogether, but an opportunity for a new way to earn. If your retirement fund is not likely to keep you in the style you wish, now may be a good time to start preparing for a different work pattern—one in which you can be in control of your time.
Look at your hobbies, and consider if any of them can be turned into productive work. Artists, musicians, and writers may well be able to find work through the internet; people with experience in home maintenance will always be in demand; builders of toys may find a ready market locally.
Now is a good time to build your skills to a marketable level, and to plan the contacts you will need when the time comes.
Alternatively, if you have professional qualifications, you may find that you are in demand to work occasionally or part-time into retirement. Know whom you should inform of your availability—while you are still in the loop.
A New Start
Retirement is not the end of a working life, but a new phase. For a lucky few, that will mean a life completely relieved of the necessity to earn a living, but for many others, it is an opportunity to change gear, and to be productive in a new way. Maximizing your pension pot is a good start, but it is not the end of retirement planning.