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How to Fund Your Retirement

How to Fund Your Retirement

When we think of retirement we may envision days spent in the sun travelling the world on cruises or even just pottering around in the garden. Either one of these dreams requires financial funding at some level. It’s important that if you want to maintain a certain quality of life, you need to know that you are able to fund it adequately. As a rule of thumb, you’ll need 65-70% of your current annual living expenses. Expenses are generally around the same during retirement as they are when you’re working. It’s never too early to start planning for retirement, in fact the sooner the better.

It’s vital we take control of our own retirement funds, as the state pension is likely to be obsolete in a few year’s time. As we have a greying population, there aren’t enough people working to make national contributions to therefore fund the state pension. With the introduction of the new workplace pension scheme, the government are putting in measurements now to ensure people start a pension. The changes are being phased in slowly with large companies needing to enroll staff into the pension scheme.

However, it’s a good idea to start your own personal pension plan if you’re self-employed or if your company isn’t getting involved in the schemes yet. Many high street banks offer personal pension plans and are a good place to start when seeking a pension. When you come to retire, you will have to consolidate your pensions and buy an annuity. An annuity is a type of insurance policy which guarantees to pay you a certain amount each week or month when you retire. This ensures that you will always have money during your retirement. The insurance company estimates how long you’ll live and then uses this in order to deciding how much to pay you.

Buying an additional property will give you a steady income per month through rental payments. A buy to let can give you a great return on investment, especially if the property is bought in a sought after area. Currently rental prices are exceeding mortgage costs each month. However it may not be a good idea to buy an additional property if you have an existing mortgage to pay, as additional debt can become unmanageable. It’s better to pay off your existing mortgage and then potentially release some equity in the home for retirement funds. You could even downsize your property.

 

Retirement
Retirement (Photo credit: 401(K) 2013)

 

Bonds are a good way of saving for retirement. Bonds enable you to loan a certain amount to a company and then receive interest from that loan amount. Once the bond expires, you then receive the initial money back. It’s a way of putting money aside for the future.

Stocks and shares are a way of keeping some funds back for retirement but can be volatile. By buying shares in a company you are able to gain access to some of their profits. However it’s a risky strategy as companies profits can drastically fluctuate. Before deciding on buying shares, assess how much you want to risk and what you’re comfortable with and choose companies accordingly.

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