How to Create a Pension Plan for a Secure Retirement
A pension plan is an important part of saving for retirement. It can provide you with a regular income in retirement, which can be used to supplement other forms of retirement income such as private pensions and state pensions. In this blog post, we will discuss the different types of pension plans available and how to create a pension plan that is right for you.
What is a pension plan?
A pension plan is a retirement savings plan that provides a lump sum which can be used to provide a regular income in retirement.
If you are employed, contributions to your pension plan are made by you and your employer. If you’re self-employed, it’s even more important to think carefully about your pension planning, as you will have no contributions from employers.
However you save, the money in your pension pot is invested, and upon retirement you can take lump sums as and when you need them, pay yourself a regular income, or a mix of both.
Pension plans can provide a valuable source of income during retirement, but there are some things to watch out for. For example, if you change jobs, you may not be able to take your pension with you. Additionally, pension plans may not keep up with the rising cost of living, leaving you struggling to make ends meet.
How to know how much to save in a pension plan
How much you decide to save will depend on your retirement goals.
The Pensions and Lifetime Savings Association (PLSA) has identified three different retirement living standards: minimum, moderate, and comfortable:
- The minimum standard is for those who just want to cover essentials and have all their needs met.
- The moderate standard is for those who want financial security and some flexibility.
- The comfortable standard is for those who want financial freedom and some luxuries.
To figure out how much you need to save each month to achieve your desired retirement standard, you’ll need to consider things like how many holidays you see yourself taking a year and whether or not you’ll have a car. If you do have a car, how often would you want to replace it? And how much home maintenance do you think you’ll need to do?
Keep in mind that these are just estimates – no one knows exactly what their future holds. But by planning ahead and saving accordingly, you can give yourself the best chance at achieving your retirement goals.
How to boost your pension plan
Once you have an idea of how much your pension plan is going to give you and how much you will need as a minimum, you may find you need to add to it.
There are lots of ways to do this but some of the most popular include:
- Increasing your pension contributions as an employee and see if your employer will match this
- Look at a salary sacrifice system
- Consolidate pensions from various places into one single pension with potentially better returns
- Add money from windfalls such as bonuses at work or even a small lottery win
Managing your pension is an important step in your financial planning. If you need help deciding what the best path is for your pension, contact Downton & Ali Associates. We are pension specialists and can help you with individual recommendations based on your situation and needs.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Approved by The Openwork Partnership on 2nd February 2023.
