Reasons for saving for retirement vary: it might be about the dream of retiring early – or of finding an ideal job you are happy to work in even after you pass the state retirement age. Different people will have different aspirations, but there are many thinking traps that can get in the way. We look at five – including procrastination, peer pressure and the bias towards investing in home markets.
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The slideshow highlights some thinking traps to avoid, but it is important to explain some steps that can help as well. The first is start early. Seven tips for pension planning lays out numbers to demonstrate this principle. It tells how a 30-year-old saving €1,000 a year into a pension (with 5% annual interest) will accumulate €71,000 by age 60, if the savings are left untouched. In comparison, a person who waits until 45 to start has to put aside €3,000 a year (under the same investment conditions) to accumulate the same amount by the time they turn 60.
The second is to embrace the "lifecycle" approach to investing. The style centres on the idea that investments are tailored to particular stages in an investor's life. Importantly, investors reduce exposure to riskier investments (such as shares) towards less risky assets (such as government bonds and cash) as they get closer to their desired retirement age.
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