When it comes to knowing what to do for the best when planning for retirement, there’s a lot of advice out there – but unfortunately some of it can be complete nonsense. So to help you make the best choices, we’ve sifted out some of the top retirement myths and set them straight…
Myth 1: It’s best to delay saving for retirement until later in your career
False. It’s really never too early to start saving for later life. You may think that waiting until you’re more established in a career or are earning a certain amount is best, but the sooner you start putting money (no matter how small an amount) into a pension pot, the better chance you’ll have of getting some decent pension savings built up.
This myth is linked to the old way of thinking where many will have concentrated on paying off their mortgage and potentially helping their children out with any university fees or contributions to a house deposit, before thinking about saving for retirement. However, times have changed and people are living longer, meaning many will have longer to enjoy their retirement years – so a bigger nest egg is needed compared to previous generations.
If you have a workplace pension, from April 2019 it will be compulsory to put at least a 5% contribution in each month and your employer will also have to contribute at least 3%. It’s always best to consider if you can afford to set your contributions higher though, as this would help you start building a bigger pension pot. After all, the sooner you begin putting money aside, the more time you’ll have to get to your pension savings goal for later life.
Myth 2: Inheritance from relatives will take care of your retirement
False. If there’s a potential for an inheritance in the future then people have been known to use this as an excuse to not save towards their retirement. However, there are too many unknowns to rely on this route to fund your retirement. For example, you can’t predict exactly what will happen in the future – you may need to retire earlier due to illness or injury, , you don’t know what you will be left, if anything, and you don’t know what the financial climate will be like when you do receive inheritance.
Therefore, it’s best to concentrate on getting your own nest egg set up and plan towards your retirement without counting on inheritance. Then if you do happen to receive any inheritance, it can be additional funding.
Myth 3: Your other half will look after you in retirement
False. Whereas this one isn’t necessarily completely false, what we want to point out here is that it’s best to not completely rely on this option. Life can be very unpredictable and that’s why it’s a good idea to have an open conversation with your partner about how you will individually plan for retirement. If you both pay into a pension, then you should be able to nominate a beneficiary to receive the money within the pension fund in the event of death, so it may be that you want to set this up. Always bear in mind though that no matter how secure your relationship is, unfortunately life can throw curveballs at you, so try and make sure you have your own pension pot building to look after yourself in later life.
Myth 4: Everyone can retire at 65
False. When you’re able to retire will very much depend on personal circumstances.
If you plan on starting retirement once you’re able to claim your state pension, the age you can do this is currently set at 65 for both men and women in the UK, but this could increase to 66 soon. It’s also thought that this age could continue to rise, due to people having longer life expectancies.
Personal or workplace pensions will allow you to access your pension earlier, so if you think yours is enough to fund your lifestyle after you stop working – retiring before state pension age could be a viable option. The earliest you can do this is normally 55, but you may be able to take money out before this age if you’re retiring early because of ill health or you have the right to do this within the scheme you’re on.
Myth 5: Your property will be your pension
False. Relying on your property to give you a pension can be dangerous, as it could mean you have to sell up and move on to access some of the cash. And really this should only be treated as a last resort, if you don’t have enough of a pension to live on. There would be nothing worse than getting to retirement and then having to sell your property or have to move to an area you don’t really want to be in, in order to get access to money. Ideally retirement should be a relaxed time and something for you to enjoy after years of working, which is why it pays to get a pension pot built up from as early as possible.