With so many theories and rules when you search ‘how much do I need to save for a pension,’ we thought it would be useful to discuss some of the best ways to help make that decision,. Particularly for anyone who is self-employed and close to panic-listing half your belongings on eBay, to raise some cash.
The good news is, the earlier you start thinking about saving for a pension, the better. So reading this today and making a decision on how much you’ll put away, means you’re already in a better position than you were yesterday.
Working out what percentage to save can be tricky, so you could always use the half-your-age rule. If you start saving for a pension at 30 years old, try putting aside 15% of your income. If you are 50 years old, you’ll need to save more, so 25% would help you reach a more comfortable retirement.
It’s not just those on payroll that have benefits associated with pensions, self-employed workers get tax relief. So for basic rate tax payers, a £100 contribution will set you back £80 of your net pay. There are also new freedom rules, meaning you can decide to take out a lump sum from your pension when you reach retirement, up to 25% in fact, without paying tax.
If you are lucky enough to earn more each year as a freelancer, it’s important to remember to increase your pension contribution in line with your earnings. This way you won’t get used to splashing the cash on things that won’t let you live comfortably, when you are drawn to SAGA holidays and comfortable shoes.
Which? Magazine surveyed over 6,000 people in retirement, to discover how much money they have and what they are spending it on. £2,200 a month was the average spend per month by retirees, per household, in 2018. This amount seems to cover basic expenses as well as some luxuries such as short-haul holidays, eating out and hobbies. So to give you an idea of a comfortable lifestyle cost, £17,000 per year is what you could aim for. Remember you’ll have likely paid off your mortgage and won’t have children or work-associated costs to cover anymore.
If you fancy a more luxurious life, including holidays to far-flung lands and perhaps a new car every five years, you’ll need around £39,000 per year. Also take in to account you’ll likely be spending more on utility bills, insurance and health related costs as you age. Check out the chart on Which? Magazine to see retirement expenses broke down by type of lifestyle.
Remember, put aside half your age in percentage, as soon as possible. And be sure to increase the amount you save in line with any increase in earnings. Proffy are proud to announce that we are the first company in the UK to offer a pension scheme for freelancers, that pays annual cashback. You put aside money into the pension scheme, just as you would in employment and each year you’ll get cashback, our version of a contribution, to your pension. We have partnered with * Nutmeg on this scheme and they have provided an exclusive promotion for new sign up’s, offering 12 months with no portfolio management fees. To find out more visit – https://proffy.co.uk/pensions/
* With investment, your capital is at risk. Pension rules apply and tax rules may change in future. If you need help with pensions, seek financial advice.
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