Yes, that’s it; I want the simple answer to the best way to save for retirement UK?
There are so many ways to save for retirement, all with advantages and disadvantages over one another.
Some with tax advantages, others with access restrictions, and some require more of your time and energy to manage than others.
Some which you are forced to do and others where you choose how much you get involved.
But is there one true path through them all?
The short answer is that it all depends on you, the type of person you are, the time you have left and what you want to do with your time in retirement.
Once you know yourself and have some background to the various options, you can determine which is best for you now and how or if that might change over time.
Read on to hear how you can start planning for a great life and retirement UK
It all starts with a great plan
What are you saving all this money for?
You might find that a lot of the commonly available information is often focused on amassing as much money as possible.
But what for?
“For a comfortable retirement”, you might say.
- This is fair enough, but what are you planning to do in that comfortable retirement?
- How much money do you need, and where might it come from?
- And are you going to be saving up all your life experiences for your old age or ticking off a few important things as you go along?
It’s not uncommon for us to plan in detail what we will do on our next holiday.
You can spend a lot of time thinking about
- Costs in various currencies
- What we are going to take
- And on and on
Even if you say you are just going to spend your time on the beach, that is still sort of a plan.
But when you are going to be in retirement for 20 or 30 years, you might need to consider more than just lounging around.
Start with some goals
Whether you like the terms goals or best guesses or bucket list, what would make retirement amazing?
- Time with family and friends
- Material things (that speed boat)
- Physical fitness to take part in sport and hobbies
- Working less, differently or pivoting to a new career
- Personal growth goals, whether they be mental, spiritual or physical.
- Relationships and romance.
When you have some goals in mind, it will help clarify what things will take up your time and those you can now identify as a distraction/waste of your time.
When a goal is a fundamental goal, it’s because it aligns with your values.
There is no conflict between the goal and what you value the most.
Consider your actions
Now you have clarity on your goals and what actions will get you there.
What sort of person is going to need to become to make those goals possible.
You might think that it’s just about the money, saving or earning it.
However, it’s also about the day-to-day actions you are going to need to take, questions and roadblocks you will encounter that you will need to overcome to get to where you want to be.
Given your goals in retirement, what might you need to do along the way?
- Keep and stay fit and active
- Maintain a healthy lifestyle
- Learn more about saving, spending, earning and managing your money
- Learn new skills or keep them up to date.
- Maintain links with friends and family
- Manage your time and energy better.
- Watch less tv and use your time more productively
Good lifestyle behaviours compound favourably
Bad lifestyle choices compound negatively.
Make your choices daily and watch them compound.
Manage or create more means to achieve what you want.
It could be about saving more money, or creating more money is the best way to save for retirement.
Looking for ways to cut down, cut out or change the way you spend could help you save more money.
Using an app to track your finances to track what comes in and out might help spot any leaks.
Using a budget might help you to give everything you earn a job to do.
Making the most of managing your money, free money, tax breaks and accounts that help you stay on the right track might make all the difference in saving for retirement.
Figuring out which method is best for YOU will likely turn out to be the best way to save for retirement.
Even if a specific way is the “best” but won’t stick to it, it probably isn’t the best for you.
Manage your money better (like its your money)
The Japanese method of saving, Kaikebo, might help you get in touch with your money more by using a simple ledger system using two journals.
In the first journal, you ask 4 simple questions to begin with
- How much money do you have available?
- How much would you like to save?
- How much are you spending?
- How can you improve?
You then split up your budget into 4 simple categories
- Needs like food, accommodation, utilities
- Wants, snacks, eating out, entertainment (you decide)
What you do then is
- Establish your budget for the month
- Set your savings goals for the month
- Track everything you spend in your 2nd journal
- Calculate how much you spent in each category
- Calculate your spending vs saving
- Review how you did compared to your goals and budget
- Figure out how to be better next time
The Kakeibo method is not about being perfect every day, week, month year but continuous learning, reflection and refinement.
Or Kaizen to give you another Japanese phrase. Improving just a little each day.
Saving that is done for you
There are at least 2 ways that saving may be done for you
- In a state pension
- In a workplace pension
The state pension is where you might be saving money for your later years.
The government uses part of your taxes to pay for your pension when you reach a certain age.
If you have full qualifying years in the UK, you could expect to receive a pension at 67 of approximately £9k per year.
This is likely the minimum you should be ensuring is happening and making sure your contributions are up to date and correct.
Workplace pension (FREE MONEY)
Another way you may be forced to save is through your workplace pension.
This is where your employer takes some money from your wages and then hopefully adds its contribution and invests it through a pension fund.
You can adjust the amount you contribute, which will affect how much cash you get in your hands and later in your pension pot.
This is one of the great ways to save for retirement; as mentioned above, you get FREE MONEY from your employer’s contribution.
If you were asked if you wanted a 5% or 10% pay rise, would you take it?
I think you would.
This is what a workplace pension is like – take the free money.
Saving that you do for yourself.
Private pension: Here’s where you have to have the discipline and forwarding thinking to save for yourself.
You can do this through a private pension where again you get free money from the government in terms of some of the tax returned to you. This could be a 20% or 40% boost depending on your rate of tax.
Again, this is free money being returned to you. So a great way to say for later life with built in discipline.
The downside of a pension is that you then can’t get your hands on it until you
Through an ISA
An ISA is an individual savings account that allows you to save and not pay any tax on the growth of the money inside the ISA.
So, for instance, you won’t pay any tax on the interest you receive or on any of the profit from share price increases.
Through a general investing account or GIA.
This is where you are placing your investments, generally shares, but with no tax incentives or wrappers.
You might put money in a GIA when you have filled up your ISA and Pensions and still have money to save.
Create more money
People often forget that there are many ways to create more money.
The traditional way is from a job
You could create more money through
- Learning a new skill
- Getting a promotion
- Moving to a new company or sector
- Or simply asking for more money if you think you are worth it.
Another way to create more money is finding your Ikigai.
It looks at four broad areas of your life and if or how you can find the right balance in all of them.
- Something you are good at
- Something you like doing
- Something the world needs
- Something people will pay you for
Whether there is an exact sweet spot where all of these are covered might be challenging to achieve, but they may help guide you in the types of jobs or activities you take on from now on.
It may also help guide you in where you could create some additional income alongside a traditional job.
Who knows, one day, this side or passion project might become your primary source of income with enough time and effort.
Make your plan come alive
The key to executing a long-term plan is not to judge harshly day-to-day progress but more like quarterly and yearly progress.
This is where you will see the changes happening.
A final Japanese phrase to use is Kaizen.
Kaizen means day to day incremental improvement.
If you can improve 1% each day over a year, you will be 365% better.
Imagine if you went to sleep 1 minute earlier each night. Seems doable?
In 60 days, you will be going to bed one hour earlier – what would an extra hour of sleep feel like?
What would your energy levels feel like with an hour’s extra sleep?
Small changes compounded over time will see you reach amazing goals.
One of the best ways to save for retirement might well be to create a life you don’t need to or want to retire from!
You enjoy the work you do; it positively impacts you and those around you; you have skills in it and get paid for it. Sounds like a win-win-win.
If you find that you can’t wait to retire and stop doing what you are doing, may it’s time to do something else??
Why are you saving up all your free time or things you enjoy for your old age?
The FIRE movement and retirement
The FIRE (Financial Independence, Retire Early) movement has gained significant traction in the UK, offering a fresh perspective on pensions and retirement planning.
Unlike traditional approaches that often involve working until the state pension age, FIRE advocates for aggressive saving and investing for your retirement, aiming to achieve financial independence as early as possible.
By focusing on high savings rates, frugal living, and smart investment strategies, individuals following the FIRE movement aim to accumulate enough wealth to live off their investments, thereby gaining the freedom to retire well before the conventional age.
This approach challenges the norms of pensions and retirement planning, encouraging people to take control of their financial future in a proactive manner.
FAQ: The best way to save for retirement UK
What is the best way to save for retirement UK?
Figuring out what a good retirement looks like for you
Taking advantage of free money and tax-advantaged accounts/vehicles like pensions and ISAs.
Manage the money you bring in better, i.e. stop the leaks
Create more money doing the things you are good at; you enjoy, the world needs, and you can get paid for.
Create a job/income you never need to retire from.
How much do I need to save for retirement UK?
What does a good retirement look like to you, and how much do you think it’s going to cost? This WHICH report may help you.
A rough estimate might be what life costs; you now x 25. This will give you a rough estimate of the fund you might need to retire from your current lifestyle.
You could also create a regular passive replacement income that might bring retirement or a work-optional lifestyle much quicker.
Yes, you could, again you would need to figure out if that is enough money for the type of retirement you want. Read more here.
What is the smartest way to save for retirement?
The way you will stick with it until you have saved enough
The one that gets you to a comfortable retirement whilst also enjoying the journey
The goldilocks type of risk, not too much and not too little, and understand the difference between the two for YOU.
By creating a lifestyle and income, you don’t need to retire from.
Where is the safest place to put your retirement money?
This all depends on what you mean by safe.
Safe like cash or safe like shares?
You might find that what you think is safe is actually risky.
Cash is always losing its value through inflation; shares go up and down in the short term but up in the long term.
You are probably your greatest risk, you don’t save enough for long enough, you get greedy, or you panic all at the wrong time. You have no idea what you are doing.
Maybe some financial life planning might be useful?
How to save for retirement?
The first thing is to join your employer’s pension scheme – this is free money.
Save first and then spend what’s left. Invest the difference in productive assets. Like property, stocks, and businesses.
Keep a clear eye on what a good life looks like for you and what its likely to cost now and in the future.
What’s the safest way to save for retirement?
The best way to put money away for retirement is by starting as early as you can. This is also the safest as it gives you lots of time to recover from mistakes and setbacks.
Another good way to save for retirement is to have multiple sources of income, personal, private, state, and business income. This way if one stops you can still live off the other.
How much should I save per month for retirement UK?
The amount you should save for retirement in the UK varies based on age, income, and retirement goals. However, a general rule of thumb is to save at least 15% of your monthly pre-tax income. But this all depends on what retirement means to you and what you want it to look like.
Summary: Best way to save for retirement UK
The best way to save for retirement is to start with a plan.
Set your goals for what you want it to look like
- Friends and family
- Work or volunteering
- Sports and hobbies
- Personal and professional development
- Business or side hustles
- Health and lifestyle
Consider the actions you need to take to get there.
Make sure your action plans include all the things that are going to get in your way internally and externally, and make sure you plan to get over them
- Lack of skills
- Lack of time
- Lack of contacts
- Finding out where to get help
- Getting over setbacks
Manage your money better.
Keep as much of it as you can by stopping the bleeding away of your money that adds nothing to your life.
- Stuff you don’t need or want
- Tax when you can save it
- Fees on all sorts of things you could get cheaper.
Create more money
- Take advantage of free money through things like pensions
- Ask for a pay rise
- Improve your skills
- Use your skills to create a new income
Execute your plan each day, week, month and year
- Get 1% better every day; if you can’t do that, try 0.5% each day
- Keep going, learning, and adapting
- The long-term trend is your friend
- Everything compounds; make sure your compounding is positive now and for the long term.
- We often overestimate what we can do in a day but underestimate what we can achieve in 10 years.
There you go; those are my thoughts on the best ways to save for retirement UK. Please let me know yours in the comments below.
If any of the above has sparked some questions and you would like to talk over them, get in contact through the links below.
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