Pension: Jordan Gillies share tips on planning and investing
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The State Pension age is steadily increasing and could one day climb past 70, which makes building your own retirement savings more important than ever. This five-step programme should help you get started.
To get rich and retire early, you can’t afford to waste time. If you seriously want to achieve financial independence, you have to do two things. Spend less and invest to the max.
Step 1. Pay down costly debts. Short-term debts such as credit cards, payday loans and Buy Now Pay Later finance are eating away at your financial wellbeing, and your hopes of retiring early.
Credit cards can charge APRs of up to 22.8 percent, while store cards can charge 30 percent. That is a far higher return than you can hope to generate from interesting, so focus all your fire power on paying that down. Start with the most expensive debt, then move onto the next most, a process known as “snowballing”.
If in serious debt difficulties, get free advice from charities StepChange, Citizens Advice or National Debtline.
Step 2. Draw up a monthly budget. If you don’t know where all your money goes, it’s time to find out.
Start by listing your monthly income, then all your outgoings, and look for ways to cut back.
Pauline van Brakel, chief product officer at money app Yolt, recommends setting a finite budget and sticking to it. “Track your spending to make sure you don’t exceed this limit.”
Keep your savings and spending money separate from each other, she said. “This will ensure you don’t dip into your savings, and allows you to see the progress you are making in reaching your goals.”
To get rich and retire early, you have to stop throwing money away and put it to work instead.
Step 3. Start saving. Everybody should aim to have a rainy day fund for emergencies, ideally covering three to six months of spending. Keep this in an instant access account, so you can get your hands on it in a hurry.
This will give you a feeling of being in control, van Brakel said. “Any saving, no matter how big or small, is a positive step.”
Step 4. Get investing. You will never save enough money to get rich and retire early if you leave it in a savings account earning no interest.
Instead, invest in a self-invested personal pension, or Sipp, which lets you invest in shares, funds, bonds, gold and property. Crucially, you can also claim tax relief on your contributions.
Every £100 a basic rate 20 percent taxpayer contributes to a personal pension costs them just £80. For 40 percent taxpayers, the cost is even lower at £60.
Also use your £20,000 Isa allowance, where all your returns are free of income tax and capital gains tax for life.
Online investment platforms AJ Bell, Chelsea Financial Services, Fidelity, Hargreaves Lansdown, Interactive Investor and others offer competitive Sipps and Isas.
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Step 5. Build your portfolio. Most people will want to start by investing in the domestic UK stock market, said Darius McDermott, managing director of Chelsea Financial Services.
He tips investments funds SVM UK Opportunities and GAM UK Equity Income. Or simply choose a low-cost exchange traded fund such as the iShares UK Equity Index Fund, which tracks the FTSE All-Share Index.
McDermott said you should also invest outside the UK, and recommends the Brown Advisory US Flexible Equity fund, which invests in medium and large-sized US businesses, and FSSA All China, which gives you exposure to the fast-growing Chinese economy.
The Mid Wynd International Investment Trust and Artemis Positive Future invest your money worldwide.
Stock market funds can be risky in the short term, but over time they are one of the bests way to get rich and retire early. Save as much as you can, as often as you can, to accelerate your retirement age.
As you become more experienced, you might want to investing in riskier assets such as Bitcoin and cryptocurrencies, but limit that to a small corner of your portfolio.
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