5 Steps for a comfortable retirement

Here are some tips for putting your money to work wisely and future-proofing your savings with easy and safe investments as well as tips for your timeline.  

The first step to truly being able to plan for retirement is to understand how much the average person needs to save for a comfortable future. According to Retirement Living Standards, a couple needs £49,700 per year for a comfortable retirement, while singles will be looking at an income of £33,600 per annum.  

Individuals get £10,600 a year from the full State pension now, so if you're about to retire you can factor that into your annual income. However, even to get another £10,000 a year in income from your investments, you would need a retirement pot of at least £250,000.  

One way to calculate how much you might need in retirement is to follow the "multiply by 25" rule. This is a simple principle -- you just need to multiply your desired annual income in retirement by 25. This will bring you to an approximate figure for how much you need to save.  

Experts at the Motley Fool website say that the issue with this rule is that it doesn't consider income tax or State Pension payments, so it's not an exact science. They found that when you include the State Pension, a couple would need to save around £430,820 to retire comfortably – a figure that still ignores income tax.   

Once you've understood how much you might need from retirement age, you must look at your timeline to achieve that, too. You can never start saving too early. How much money you will need for an estimated number of years can be hard to calculate, but there are steps you can take as you enter different phases of your life. 

Your 20s 

If you start thinking about saving in your 20s, you could benefit from looking at more long-term savings plans which could yield better returns in the long run. Even if you're only contributing a small amount each month, compound interest will be on your side.  

You could put in a tenner a month and, thanks to compound interest over decades, it would still create a decent pot for you when you come to retire. 

It's also a really good idea to stay enrolled in your workplace pension, as you then get 'free money' from your employer, plus the tax back from the Government that all pension schemes get. Employers must now automatically enrol employees in a pension scheme – so don’t opt out! If you're self-employed you just get the tax advantage, but a pension is still worth having. 

It's also worth considering taking out a LISA (Lifetime ISA) as the Government adds another 25% to anything you put in (you can deposit up to £4,000 a year into one of these). 

Your 30s 

In your 30s, you're still young enough to make a significant dent in what you'll need to save to retire comfortably. As it stands, you'll have a maximum of 36 years to go until you reach State Pension age and a lot of time to gain a good savings pot from workplace pensions, where employers contribute a minimum of 3%.  

Alongside this, you might think about building up value from other assets, such as a house, to boost retirement value. Again, don't forget the LISA which will help you put a deposit on a home or contribute towards your retirement. 

Your 40s 

In your 40s you might be established in your career and on a better earnings track than in your 20s and 30s. So, this will free up more money for later in life. If you start saving for retirement in your 40s, you'll have to look at putting more into your pot each month than you would have if you'd thought about it earlier on.  

You're also more likely to be on the housing ladder and can consider using your property to help fund your retirement down the line. However, it's much better, overall, to have investments separate from your home, so make some time to really investigate good places to help your money grow. 

Your 50s  

In your 50s you might want to seriously look at how much you have and think about at what age you want to stop working. You might also want to look at how you could go about taking your pension out of the pot, be it with annuities, a drawdown or lump sum, now or later. 

Check to see that you have paid enough National Insurance over your life to qualify for the full State pension. If you haven't, you’re allowed to pay for some years in some cases, and it could be a good idea to do that.  

When you're in your fifties you qualify for a free advice session with Pensionwise. It's worth getting that so that you can have a good idea of what money you can expect to make in retirement and, also, whether you need to put more aside now to fund yourself later. 

You might consider getting help from a financial planner or advisor to understand the investment options that will best help you retire with a healthy savings pot. Doing this earlier can mean your money is put to work in more productive ways from the get-go.  

Look at investing or consider how you can maximise your current investments Once you decide to invest you need to think about whether you want to do-it-yourself or hire in help. Here's a guide to using a financial advisor or going it alone and DIY investing.  

It can be confusing to know exactly what you have from the different pots available. Here are a few ways to check your pension annually.  

State pension 

It’s a good idea to regularly request a State Pension statement so you can see how much State Pension you’ve built up so far. You can apply for one online, by phone or post if you’re aged 16 or over. You’ll find details about how to do this at GOV.UK. 

Defined benefit (final salary) pensions (DB) 

Final salary pensions pay a retirement income based on your salary and the amount of time you've been part of the scheme. It's generally only public sector or older workplace pension schemes that offer DB pensions, and members of one will usually be sent an annual statement by the scheme. 

If you don't receive this, you can request it. The statement shows how much pension you might get. It might assume that you take your tax-free cash lump sum. 

Defined contribution (DC) pensions 

These schemes mean you build up a pot of money you can use to provide yourself with an income in retirement. The value of the pot is based on your pension contributions, your employer's contributions plus investment returns and tax relief. They can be run through an insurance company, master trust provider or you might be a member of a bespoke scheme set up by your employer.  

Annual statements will give you an idea of the monthly retirement income you can expect. It might not assume that you take your tax-free cash lump sum, however. In this type of scheme, you have freedom over how you can access your funds if you're over the age of 55.  

Combining your pot  

Consolidating your pensions from different workplace plans can make it easier to know what you have in total. PensionBee is one company that does this, and they provide an easy-to-use platform for both choosing what type of pension you want and consolidating existing pensions.  

Read more:  Money questions you should know the answer to

Read more: Easy ways to boost your property value

Keep up with the top stories from Reader's Digest by subscribing to our weekly newsletter