It’s NEVER too late to build your retirement nest egg

It is regularly drummed into us that we need to invest for a comfortable retirement. But so often, life and other financial commitments get in the way, we don’t get round to it, and then – before we know it – we’re on the road to retirement with very little stashed away.

In fact, one in five Britons say they have no form of private or workplace pension, according to a recent survey by comparison site Finder.com. Yet it’s never too late to start building an investment nest-egg. Even if you have little invested to date, it is still possible to get started and build something meaningful. Here’s how to build that nest-egg from nothing.

20-40 YEARS OLD: START SMALL FOR BIG RETURNS

This is a great time to start building a retirement fund. It is often not easy to find spare cash, but even small contributions – into a pension or a tax-friendly Isa – can make a huge difference.

Nest egg: It is regularly drummed into us that we need to invest for a comfortable retirement

Nest egg: It is regularly drummed into us that we need to invest for a comfortable retirement

That’s because money that you put aside early on has time to snowball into something much bigger, thanks to the power of compounding returns.

If you are an employee, put as much as you can into your workplace pension – most workers are now auto-enrolled into a plan. This way, you will benefit from contributions from your employer as well as tax relief from the Government.

So, if you are a basic-rate taxpayer and were to contribute £100 from your salary into your pension, it would actually only cost you £80. The Government adds an extra £20 on top – what it would have taken in tax from £100 of your salary.

If you are self-employed, you will need to set up your own pension. Such workers are the least likely to have a pension: only around 15 per cent of the five million self-employed in the UK are currently saving into a private pension.

The self-employed are still able to benefit from tax relief on contributions. A self-invested personal pension (SIPP) or stakeholder pension are two good options. Some plans are specifically designed for self-employed workers and so allow you to vary your monthly contributions as cash flow allows.

Louise Oliver, of Cheltenham-based financial adviser Piercefield Oliver, suggests that lifetime Isas may also be a good option for saving, especially for the self-employed.

These are tax-free savings vehicles that you can open if you’re aged between 18 and 40. You can save up to £4,000 a year and the Government will contribute a bonus of 25 per cent.

They are designed to be used only for saving for a deposit on a first home – or towards a pension. ‘With lifetime Isas, you really must use them for a home deposit or retirement funding,’ stresses Oliver. ‘Otherwise, there are penalties if you take the money out for anything else.’

It can be tempting to act cautiously when you start building a nest-egg – to protect the small sum that you have managed to accrue. But you need to take risks for a chance of good investment returns – that means investing in equities or equity-based funds via your pension or Isa. You can afford to take investment risk at this age because you have decades for your investments to recover from any stock market falls.

Keeping money in savings accounts may feel safer than investing, but they are actually losing value because few accounts currently pay an interest rate that beats inflation.

40-60 YEARS OLD: YOU CAN STILL CATCH UP

If you hit your 40s – or later – and you have nothing or little put away for your future, you still have time to catch up. But you will have to save a higher percentage of your earnings. It is also worth checking whether you may actually have a pension or two, however small, set up by a former employer. The Government has a free pension tracing service: visit gov.uk/findpension-contact-details or phone 0800 731 0193. Romi Savova, chief executive of online pension provider PensionBee, says: ‘The average person will have 11 jobs in their lifetime. That could mean 11 different pensions.’

If you’re employed, make sure you contribute as much as you can to your workplace pension. It can be hard to prioritise saving for a time some years away when you have pressing costs, especially if you have children.

But being financially independent in later life makes life easier both for you and your family. Even making a small pension contribution each month will make a difference later on. Olivia Kennedy, financial planner at wealth manager Quilter, says: ‘Someone making a £100 a month contribution into a pension starting at age 40 would accumulate a pot of just over £24,000 by age 55, assuming annual investment returns of five per cent.’

Sean McCann, of pension provider NFU Mutual, adds that many people in their 50s think they’ve left it too late to invest in a pension – when they haven’t. He says: ‘The fact that you can take money out of your pension from age 55 means that once you reach your 50s and 60s, you don’t need to lock your money away for decades to benefit from the tax advantages.’

As you get closer to retirement age, check to see that you’re still taking an appropriate level of investment risk. Yet, just because you’re getting older, it doesn’t mean you have to rein in investment risk altogether.

Rebecca O’Connor is head of pensions and savings at wealth platform Interactive Investor. She says that when you are in your early 50s, and assuming you don’t plan to give up work until you are aged 67 or 68, you can still afford to take some risk with your pension investments.

‘It’s a long enough time frame,’ she says. ‘This gives your contributions a better chance to grow than if you had picked a low-risk investment option.’

In fact, if you plan to keep your pension invested beyond retirement age, you may be able to take even more investment risk.

Don’t forget Isas. Currently, you can invest up to £20,000 in any one tax year in these tax-friendly wrappers. Although any contributions will be funded from taxed income, all withdrawals from an Isa are tax-free – and are not prescribed by age like a pension.

60+ YEARS OLD: CASH IN ON YOUR HOME

If you’ve reached your 60s with no money set aside for your retirement, you’re not alone. Around 17 per cent of those aged 55 and above admit to having no pension investments, according to the financial adviser website Unbiased. But there are still steps you can take. Again, check that you have no pensions that you have forgotten about from former employers.

Make sure you are receiving the full state pension to which you are entitled. You may also be able to top up your state pension by making voluntary contributions.

Find out more at: gov.uk/statepension/increase-the-amount-youll-get.

If you own your home, you could also free up some cash through equity release. This is not for everyone and, ideally, should be put off until you are at least in your late 60s.

However, it can be a good option to allow you to increase your income and live in your own home as long as you are able.

When you pass away or go into a care home, the home will be sold for the loan to be repaid.

You may also find that when you hit your 60s you are still feeling fit, healthy and raring to go. In this case, there is nothing to stop you setting up your own business and using that as an income – or doing some paid part-time work.

The number of self-employed people aged 65 and over has more than doubled in the past five years, according to charity Age UK.

As well as providing an income, setting up a business can fulfil a long-held dream for many.

Start by setting up direct debit

The easiest way to build a decent-sized savings pot is to automate your savings.

Set up a regular standing order to go into a pension or an Isa, so that you effectively ‘pay yourself first’ – by looking after your future self before spending on other items. Taking out the need for self-motivation to put money away is key.

It doesn’t matter if you have left building a nest-egg until now – the important thing is to not put it off any longer.

It is easy to delay by rationalising, for example, that stock markets are not in the best position to start investing – or that you’ll do it once you have a little more income to spare.

But in a recent retirement survey conducted by wealth manager Interactive Investor, several respondents ruefully admitted that timidity had been their greatest foe when it came to developing a healthy retirement pot.

One explained: ‘I regret not investing because I expected stock markets to crash. They didn’t – and I still expect them to.’

It can also be tempting to wait until you have paid off your debts before starting to invest for the future. Yet this is not always the best approach.

Long-term debts such as a mortgage or a student loan do not have to be a barrier to investing, even if they do limit the amount of money you have to put away.

It is also usually worth paying enough into a workplace pension to benefit from employer contributions, even if you have outstanding debts.

But you may want to consider paying off expensive, unsecured debts – credit cards, for example – before boosting your pension or Isa contributions.

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