Today, I want to highlight three simple saving moves that can have a big impact on your retirement wealth over time. If you’re serious about saving for the future, I’d recommend doing these three things sooner, rather than later.
Open a tax-efficient retirement account
One of the first things you should do if you’re serious about saving for retirement is open a tax-efficient savings/investment account that’s designed for retirement saving. This kind of account will help you grow your retirement money far more effectively.
In my view, the best accounts here in the UK are the SIPP (Self-Invested Personal Pension), the Stocks & Shares ISA (Individual Savings Account), and the Lifetime ISA. All of these accounts enable you to hold a broad range of investments including stocks, funds, and ETFs while sheltering capital gains and income from the tax man. I’d forget about a Cash ISA as this is pretty much useless for retirement saving due to the fact that interest rates are so low. Any money in a Cash ISA is going to lose money over time.
Even if you have a workplace pension in place, opening a SIPP or an ISA to save a little more for retirement could turn out to be a great move in the long run.
Take advantage of bonus money
Next, look to take advantage of the generous bonuses that the government is handing out to those who are willing to save for retirement.
So, for example, the SIPP comes with 20% tax relief for basic-rate taxpayers. This means if you pay in £800, your contribution will be topped up by HMRC to £1,000. Similarly, the Lifetime ISA also comes with attractive bonuses. Pay in £1,000 and you’re account will be topped up to £1,250.
If you’re serious about saving for retirement, you’d be mad not to take advantage of this bonus money. It could also be worth speaking to your employer about any bonuses they might be willing to provide on your workplace pension.
Asset allocation
Finally, spend some time thinking about your asset allocation. This is the mix of different assets in your portfolio. This step is really important as it will have a big impact on your overall returns. For example, if 90% of your money is sitting in cash earning 1%, your wealth isn’t going to grow at a high rate.
Your exact asset allocation will depend on your own personal objectives. It needs to take into account your investment horizon (time to retirement), your risk tolerance, and a number of other factors.
Generally speaking, if you’re looking for higher returns on your money, you’ll want to have decent exposure to growth assets, such as shares. It’s also a wise idea to diversify geographically so you have exposure to different international markets such as the US, Europe, and Asia.
Retirement saving doesn’t need to be complex. But thinking about your savings plan every now and then and making a few smart moves could make a big difference to your wealth over time.