How to Save for Retirement
Most people are aware that they should be saving for retirement but many are not sure where they should start.
There are a number of different pension schemes and savings accounts that can be taken out that enable people to save while receiving tax relief on their contributions to the schemes. Finding out where to start when looking to save for retirement is made easier by working out what kind of lifestyle the person wants to have upon retirement and how much they would receive from a State Pension. Once this calculation is made they can then begin to think about how they would like to go about saving enough to provide them with this lifestyle.
Save for Retirement through a Pension
Most people decide to invest in a pension as this is a way to save for retirement and by doing it this way it means that an annuity can be purchased which will provide an income for life after retirement. There are a number of different types of pension available and these include company pensions, stakeholder pensions and SIPPs (Self-Invested Personal Pensions).
Many companies will provide either a final salary pension scheme or a money purchase scheme, which can both offer good value for money. For those who feel that their company pension is not going to provide a big enough income when they retire, they may have the choice of adding additional voluntary contributions which will top up their pension pot. For people who have not got this option or feel that even by doing this they will not have the income they require they could look at investing in a personal pension such as a stakeholder pension. This would give them flexibility as people are able to change their contribution amount as and when needed and unlike most company pensions contributions can be stopped and started.
A SIPP enables people to have more control over their pension investment as they decide what funds to invest their money in and have the ability to move their money around easier than if they had a stakeholder or money purchase pension. For those unsure about what funds to invest in it is often advisable to go for a stakeholder pension as they can choose to invest in a default fund, although this is not the most profitable way to invest, it does take the stress out of choosing funds.
Save for Retirement through Savings Accounts and Investments
For people who have up to around £15,000 a year that they would like to save for the future investing in and ISA may be the way forward. There are two types of ISAs available and they are a cash ISA and a stocks and shares ISA. People can have two ISAs running in one tax year but these cannot both be cash or stocks and shares ones. There is an annual allowance which can be paid in tax free and they allow people to earn a higher amount of interest compared to leaving money in a normal bank account.
Cash ISAs enable people to save on tax and earn a high interest rate on their money and they should be the first product that someone looking at saving should consider. There are a number of different cash ISAs available with instant access, fixed rate and accounts which have a based rate guaranteed.
A stocks and shares ISA are a great option for people who are investing in this area, as any profits made through an increase in share prices are not liable to pay capital gains tax. Secondly it enables people to claim all tax on bonds held in the ISA to be reclaimed.
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