plonkee money an english-er's thoughts on personal finance

July 14, 2008

why retirement planning is important

Filed under: retirement — Tags: , — plonkee @ 11:37 am

I was catching up on my reader when I noticed this great post from bluntmoney about how working until you die is not a good retirement plan. She’s right, working until you die doesn’t sound like fun, but what would be worse is needing to work and being unable to due to ill health or whatever.

I know that you’re all sensible people who have this figured out, but I’ll just remind you that I’m in my late twenties, have been investing for retirement since I left university and I will need to keep putting around 15% of my salary away every year just so that I can retire with the same income that I have now.

There are people who think that they can’t afford to invest for retirement. Trouble is, the way I see it, you’ll have to cut back at some point. Money doesn’t grow on trees, and you can either cut costs now and invest or try and live on the state pension in your retirement. Do you know how much that is? The current minimum income guarantee is £124.05 a week. That’s only £6,450.60 per year. That’s really and truly not an awful lot of money – and it makes the assumption that there will be enough money to support that when you retire.

If there’s more than 10 years to go until your retirement you should start seriously putting away money now. (If you have less than 10 years, you might want to check out my series on baby boomers without pensions.) I think that a rough rules of thumb of 15% of your gross salary and/or as much as you can afford should be floating through your mind.

It’s really not rocket science. If you’re in the UK, get a Stocks and Shares ISA, or a stakeholder pension, or some other simple tax-advantaged investment vehicle. And put the money away, or you could be old and ill and choosing between heating and food in the winters.

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