Financial experts have outlined a roadmap for individuals to follow after a woman realised she had no retirement savings less than 20 years before she reaches state pension age.
Many people strive to save, invest and manage their pension funds, while others depend on automation to handle their retirement planning.
However, things can sometimes go wrong, as one listener of The Meaningful Money Podcast discovered when she had to start her pension pot from scratch at the age of 48.
With less than 20 years until she reaches state pension age, the listener found herself in a difficult situation after recently divorcing and becoming self-employed.
She expressed her desire not to burden her children with funding her retirement, only to discover that she “thought I had a pension but I’ve got nothing set up”.
Turning to hosts Pete Matthew and Roger Weeks for advice, the fan received some comforting words to start with. Pete said: “Pension sounds complicated – the word. A pension is just an account so don’t be scared of it. Like a savings account, an ISA.”
He further explained: “If you think of your pension like a box, the thing that grows your money is what’s inside the box, which is what we call a fund. That’s the main thing. When it comes to DIY pensions, you don’t need a financial advisor and if you’re going to do this, pension falls into two camps.”
Roger shed light on the issue, explaining that the caller had two main options: take on the “full DIY route” by meticulously selecting the individual funds to build her pension – a task not everyone has the time or expertise to tackle – or opt for an off-the-shelf pension fund from a reputable company.
He pointed out that with the second option, someone simply needs to choose a company and fund that aligns well with their needs and “just drop your money in”.
Regarding the selection of the appropriate funds, Pete further advised: “If you’ve never invested before, our advice is to start as a balanced investor, broadly 50/50 or 60/40 between shares and fixed interest.”
He highlighted that due to the listener’s age, with over a decade until retirement, she could afford to be slightly more bold with her investments, as there’s ample time for her fund to bounce back from any short-term market volatility.
The experts suggested that stashing away nearly 10% of her earnings into the pension pot would be sensible, but given the fluctuating nature of self-employed income, this figure is flexible. Roger wrapped up his advice by saying: “Choose (a number) that you’ll keep to. Just get the money going in, get the tax relief.”
