1. Get in early: Starting to save early can boost chances of accumulating enough money to retire in comfort. One reason why starting early can pay off is to reap the full benefits from the power of compound interest. Numbers tell the story. 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.
2. Develop a savings habit: Putting a small amount of money often into a pension can help build a savings habit. Like saving for other goals, little and often adds up over time and tends to be achievable. In contrast, making infrequent payments can risk not saving enough to meet goals.
3. Thanks, boss: Some employers contribute to pension funds of their employees. Signing up to cash in on such offers can be a financially savvy move. Not taking the offer of matched saving from an employer is equivalent to throwing money away.
4. Make pensions saving less "taxing": Some governments also offer tax advantages for money saved into designated retirement accounts. As with employer matching, not using tax concessions is like throwing money away.
5. Don't dip: While withdrawals from pensions are allowed under some schemes, it is often best to avoid dipping into pension funds before retirement. Taking money out reduces the balance – and is likely to have the negative side-effect of reducing interest earned as well.
6. Don't invest and forget: In addition to paying money in regularly, take time to step back and assess pension plans. Review progress annually and see if the pension is on track to reach goals or if more or less needs to be invested. Monitor fees charged by the companies that manage the pension funds. Examine the risk profile of investments – and take heed of the theory detailed in the eZonomics video The lifecycle approach to investing to reduce exposure to risk as investment goals get closer.
7. Let's be realistic: Retirement can mean years travelling the world or years spent close to home and family. Whatever the lifestyle aspirations, tailor pension planning to fit the likely costs. Online tools, such as Your Number from Voya in the USA, can help. Likewise, financial advisers, government bodies and charities in some countries may also provide guidance. A more detailed calculation of annual expected income from state and private pensions (and other sources) is possible as retirement nears.