No money for retirement what to do now?
If you are reaching the age where you are starting to think about retirement, whatever that might mean to you, you have probably begun to try and calculate how much you have and what lifestyle that can produce.
If you don’t have savings for retirement, you will likely find that your choices will be pretty limited.
If you haven’t paid off your house and can’t make the ongoing payments, the first choice that goes might be the place that you live—soon followed by the lifestyle you can maintain.
None of this is likely to be an enjoyable process.
Read on to hear what steps you can take to avoid disaster and take action to secure a comfortable retirement as you can.
When you don't save for retirement, you start losing choices.
When you don’t save for retirement, you will start reducing your choices later in life.
Perhaps you’re going to find yourself having to make difficult choices which may include:
- Cutting back your spending on the things you enjoy
- Selling off assets to pay for day to day needs
- A loss of independence as you need to rely on others to support you like the government, friends, family or your children.
- A loss of dignity as you can’t afford the lifestyle you used to have or would like.
According to the FCA, the average pension pot in the UK after working a lifetime is just over £61000. A pension of this size might give you a pension income of around £3000 per year when you retire.
Does that sound like a lot to you?
If you qualify for the full state pension in the UK, it will provide an income of around £9000 per year.
This could mean a combined income of a little over £12000 per year.
Will £12,000 per year in your retirement keep you in the manner you have become accustomed to?
According to which an income like this would afford you a basic lifestyle.
The Which report about retirement indicates that if you wanted a leisurely lifestyle, it would cost £19,000 with a luxury lifestyle costing £30,000 for a single person.
Taking into account the state pension, for you to receive a pension like the above figures, you would need personal savings between £250,000 and £525,000. This calculation is worked out by X your desired income by 25 – also known as the 4% rule of thumb.
The 4% rule of thumb is a way to indicate what you might be needed in savings to generate that sort of income.
So there appears to be a big gap between what the average person has and what is needed for a comfortable retirement, never mind if you have no savings at all.
What to do if there is a gap
If there is a clear gap between what you think you need in a pension pot and what you have, then it’s time to take action.
Nothing savings for retirement? Hmmm, time to take action now, you think?
How you create an income in your retirement is up to you. It can be done by living off savings and investments or by living off the income of your assets.
Depending on how little you have in savings might mean you need to try more than one or all of these to get your savings up or create additional income streams to support you in retirement.
Gather your financial data
The first thing to do is figure out where you are money-wise.
- If you haven’t already, collect all your financial information in one place. Get all your bank accounts, credit cards, store cards, insurance details, payslips etc., into one file.
- It would help if you then placed them in order; it could be by assets vs liabilities, bank accounts, insurance’s or whatever order makes sense to you and makes it easy to find the info you need.
- Now figure out the difference between your assets and liabilities, what you own vs what you owe. This will give you your first number – your net worth – what you are worth after all these years of working. Hopefully, it’s a positive number.
- Figure out your monthly and then early expenditure – what does it cost you to live the life you currently have? This is your burn rate or how much of your money you are burning through. Once you have this number, you can get an idea of your freedom number. 25 x your annual spend.
- What’s the difference between what you earn and spend? Is this a positive number? If so, this tells you your savings rate,e. how much income you get to keep after all the spending.
- Get yourself a forecast of your state pension – this will help you understand what you might get when you reach 65 -67 and if you have any missing contribution years.
So with the above information, you now have an idea
- where you are starting from – your net worth.
- How much you spend a year for the lifestyle you currently have – your burn rate
- How much of your money you get to keep – your savings rate.
- With the above info, you can get a rough estimate of how much you need to become financially free – 25 x your annual spend.
The more money you save and the less you spend, the quicker you will reach your retirement savings goal.
Pay yourself first.
One of the biggest tricks to use in personal finance is to pay yourself first.
Rather than pay everyone else first, i.e., the water, gas, internet, food, entertainment, car, etc., you pay yourself first.
The ploy here is to reverse the normal course of events. Rather than saving what’s left at the end of the month, which might not be a lot, you save first and then spend what’s left.
You can do this by manually saving the amount you want or by automating it, so it just happens without the potential for human error, i.e. you forgetting or procrastinating on doing it.
You just have to work out how much you need to save for your goals and stay within your remaining budget on your outgoings.
Track your spending.
Having a budget or spending plan, if you prefer, that wording should help you stay on track.
You can do it with an app that does it all for you or a pen and paper method.
Here are a few money apps reviewed to see which one might work for you.
You could try a more hands on process called Kakeibo, the Japanese budgeting system.
In short, you need two notebooks
- To plan out your month – where you want your money to go, needs, wants, culture and unexpected, and savings target.
- In this book, your record EVERYTHING you spend
At the end of the month, you compare what you planned for and what happened.
With this info, you then try and make the next month better, and then the next month, and so on.
The Kakeibo method is credited with helping people save up to 35% on their monthly spending.
Its simplicity and flexibility might be worth a try.
Start cutting your costs.
Reducing your costs will give you more room to save more and put that money away for retirement.
Trying to reduce some of your highest recurring costs might see you keep a lot more of your money for retirement.
Could you review and reduce your:
- Housing costs – a smaller place to live, in a cheaper location or sharing – downsizing may free up significant cash flow
- Scaling back your lifestyle – go and eat our less, cheaper holidays, fewer toys.
- Reducing your standing orders – utility costs, mobile phone, internet – you can always shop around and maybe even get cashback if and when you switch.
- Your shopping costs – buy less at cheaper shops or cut out things you don’t need.
- Cut down or reduce your travel costs – where possible, could you walk, get a bike or share travel costs with others.
Create additional sources of income
Can you use your skills, experience, or knowledge to earn an extra income?
A side hustle or side business to supplement your income might well boost your cash flow and ability to save more.
Could you use what you have and what you know to
- Write a book.
- Produce an informational document to sell.
- Make YouTube videos
- Start a blog.
All or someone of these with enough work might well bring in an additional income, maybe small at first but growing over time.
If you have property, could you rent out a room, garage or other space to produce an income?
It might not be the most desirable thing to do, i.e., share your space but better to do it now when it’s a choice than when you are older and forced to.
Remember, this is all about earning and saving money to make your life more comfortable when you can’t or don’t want to work anymore.
Unless you have high-interest debt, then you could consider investing to help your money grow over the long term.
The keyword above is over the long term; investing in stocks is really a 5 year plus process and not something to do with the money you definitely need in the next 5 years.
If you invest in a pension, there may also be some tax incentives whereby the government pay back some of the tax you have paid on earning it.
If you are a lower rate taxpayer in the UK, this would be a 20% boost to your money and a 40% boost for higher rate taxpayers.
Investing over the long term has the opportunity to see your money grow far more than just kept in cash and a much greater chance of beating inflation.
If your investments can match or ideally beat inflation, then this will see you maintain your purchasing power.
The key to good investing is
- Keep your costs low
- Diversify your investments across companies, sectors and geography.
- Keep investing by dollar/pound/Euro cost averaging, i.e. investing the same amount every month – increasing it when you can.
- Only sell if and when you need to – not because the market has gone down!
- DON’T PANIC – it’s probably not the end of the world
- Understand the difference between temporary declines and the permanent advancement of the global markets.
Retire later or do it differently
If you have no money for retirement, you might need to delay it or try and do it differently.
You could consider moving to a different country where the cost of living is a lot cheaper.
Could you share accommodation to cut your costs?
Could you create the type of job or business that you don’t really need to retire from, something that did not require a lot of physical energy? A business or career that could be done at a desk and or over zoom.
Exploring these types of opportunities might help you delay your “official” retirement date.
Get help with your money
If you are struggling to figure out your money and how much is enough for retirement, you could seek out the help of various financial services.
You could do it your self by reading books, blogs and podcasts
You could get a financial coach (like me!) to help guide you through various scenarios and options and then make a plan.
You could contact a financial advisor to help you chose the right products for you.
Some of the free resources out there are
Summary: No money for retirement what to do to avoid disaster.
Gather your info – you need this to understand where you are now and where you want to be in the future.
Pay yourself first – yep, that’s right before you pay everyone else pay yourself. Save some money and then spend what’s left, not the other way round.
Track your spending – understand what’s coming in and going out. Once you know this, you can review what you could cut down, cut out or change the way you spend your money.
Cut your costs – can you reduce your outgoings by changing the way you spend, how much you spend and where you spend? Could you start to look for better deals on your recurring costs like utilities, rent, travel and food? Every little will probably help.
Create additional income sources – the more than comes in the more it will help you save for retirement. Could you create more income from the skills, experience and knowledge you have from work or hobbies?
Start investing – if you have a long-term horizon, investing in the great companies of the work might be a good idea. If you invest in a pension, there may also be some tax incentives to boost your savings along the way.
Retire later or differently – maybe you need to delay your retirement past the traditional points like 65. Working part-time might allow you to slow down your work rather than a sudden stop.
You could also look for ways to live differently, in shared accommodation or in a cheaper cost of living area or country to help with your living costs.
Get help with your money – read more on this below – finding help with your money is likely to be a great way to clarify what you need to do and how. Just make sure you find someone who is genuinely trying to help you and not just trying to sell you something which will actually take away more of your money.
Anyway, those are my thoughts on no money for retirement what to do; let me know yours in the comments below.
Thanks for dropping by.
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