Trying to save for retirement to can be a daunting and stressful process. And this is why so many people choose to delay their pension planning for as long as possible.
Unfortunately, this is probably the worst thing you can do. Saving for retirement isn’t glamorous or sexy, but it is essential, and the sooner you start saving, the better.
So, with this in mind, I’m going to cover my stress-free strategy for boosting your retirement savings, an approach I believe will put you firmly on the course to achieving a comfortable retirement without taking up too much of your valuable time.
Starting at the beginning
The most stress-free way to start saving without having to get out a spreadsheet to work out a budget is to set up a direct debit to come out of your account at the beginning of every month.
I’ve borrowed this advice from The Oracle of Omaha, Warren Buffett, who believes savers should not “save what is left after spending,” but should instead “spend what’s left after saving.” This strategy is a simple and straightforward way to make sure you are saving enough every month without having to worry about how much you are spending.
When you’ve got this savings plan sorted, the next step is to find a suitable investment for your money. Investing is the best way to get your money to grow over time. If you’re not willing to take this risk, then you’re putting yourself at a significant disadvantage. Today, there are thousands of options for investors to choose from when it comes to picking investments and funds.
I recommend savers take advantage of the boom in low-cost tracking products and buy a low-cost FTSE 250 tracker fund in their pension fund. Most investment platforms offer a regular investment option for customers to take advantage of, and I highly recommend using this as part of that stress-free process.
You can set up a monthly investment of say, £200 a month, that will be deducted from your account and invested without any further input on your part. That’s the core of my anxiety-free strategy, to set and forget a regular direct debit and investment plan.
The benefits of compound interest
When you have a saving plan in place, your money will take care of itself. This is the benefit of compound interest, which is essentially the process of your money making money.
Compound interest does all the heavy lifting of saving, so you don’t have to. For example, let’s say the FTSE 250 produces an average annual return for investors of 10% per annum for the next 20 years (in line with its historical average). At this rate of return, just £200 a month (or £2,400 a year) would grow to be worth £149,000, that’s £48,000 of total deposits and £101,000 of total interest (which is a blend of capital and income growth in this case).
So, that’s my stress-free strategy for boosting your retirement savings. The numbers (contributions and returns) above are just a rough guide and will vary from saver to saver, but the structure will remain the same for everyone.