EVERYONE dreams of becoming a millionaire – but you could actually make it happen.
Savvy saving now could mean you’re quids in by the time you retire, even on a modest income.
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Pensions expert Maike Currie from Fidelity International, told The Sun: “It’s fair to say your chances of winning this sort of lump sum are fairly slim.
“But becoming a pension millionaire is a goal far more of us can work towards.”
It won’t happen overnight, says Maike who has spent 20 years working in finance, but it’s not beyond the realm of possibility – if you follow some simple steps.
We previously spoke to a 56-year-old retail worker who has a £1million nest egg already saved.
If he retired now, that could give him a lump sum of £250,000 that’s tax free, and then an annual income of £28,700.
Maike said: “Accumulating a £1million pension pot may still feel like a lofty goal, but there are some key principles which can help to set you on the right track, boosting your retirement savings and ensuring you have an income to fund your needs in retirement.”
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With the average income for a “comfortable” retirement estimated to be £34k a year – including holidays abroad – having a goal for your retirement income means your more likely to hit it, whatever the figure.
A million pound goal can take a high income, long time to save or spending sacrifices – or a combination of the three.
Here’s Maike’s top tips for saving that could see you on your way to becoming a pension millionaire.
Get started
Many of us put off saving for more immediate rewards, but getting into the habit of putting money away for retirement is the foundation for building your £1million nest egg.
Maike said: “The first step is to start. While this might sound simple, establishing new habits can take time and effort.
“Review your outgoings and think about how much you could put aside in savings, as well as opportunities to cut back your expenditure.”
Even a little saved now can add up in the long run. Making regulator contributions is an excellent way of building your pension over time,” she said.
Maximise your workplace pension
More than 10million Brits now pay into a pension through their workplace automatically. But this may not be enough to give you the retirement you want – or that first million.
Review your contributions regularly and increase them when you can, and see what your employer offers.
Maike said: “If you’re part of a workplace pension scheme you’re likely to be investing 8% of your salary already (5% of contributions made by you as an employee, topped up with 3% from your employer).
“But it’s worth exploring whether your employer is willing to make contributions on your behalf above the statutory minimum levels.
“Some employers will contribute a basic amount to your pension plan and offer to contribute more if you do too – see if these ‘extra’ contributions are available to you and if they are, think about if and when you can take advantage of them.”
By increasing your pension contributions – even by a small amount – you have a longer time for that money to grow, she added.
Meanwhile, if you’re one of the more than four million Brits who work for yourself, you’ll need to set up your own personal pension.
Maike said: “Opening a SIPP (Self-Invested Personal Pension) will allow you to invest these savings and begin building your retirement pot.”
Take advantage of tax perks
One of the biggest reasons for saving into a pension is because of the tax perks.
This is essentially free cash that goes into your pension, meaning you’re putting away more for your future.
“Pension contributions benefit from tax relief, which means that a £1 contribution today costs you 80p if you’re a basic-rate taxpayer, as little as 60p if you’re a higher-rate taxpayer and 55p if you pay additional-rate tax” Maike explains.
“Exactly how it works will depend on the way your pension scheme operates its tax relief, she adds.
Tax relief acts as an incentive for saving, adding more to your pot on top of your own contributions.
For example, if you put in £25 a month from the age of 22, tax relief on top would see £30 going into your pension if you pay tax at the basic rate.
That extra £5 alone saved a month could be worth nearly £20,000 by the time you retire, estimates show.
Of course the exact amount depends on your tax rate, how much you save into your pension and for how long.
Stay on top of your savings
Given that very few of us these days will work for the same company throughout our working lives, there’s a good chance you have a few pension pots dotted around, says Maikie.
“Over time, it can be difficult to track these down. Likewise, often when people move house the data held by past pension schemes becomes out of date,” she said.
“The Pension Tracing Service can help. It has details of over 200,000 pension schemes and can help people find previous pensions – and the added bonus is that it’s completely free of charge.
But this won’t work for any private pension you have set up that’s not through your workplace.
“In this case you must contact your scheme provider to find out what your pension is worth. If you don’t know where to start, a good option will be the Unclaimed Asset Register.
It could be worth consolidating your pensions in one place once you’ve tracked these down – it could save you hundreds of pounds a year on fees.
We spoke to one man who discovered a lost pension worth a whopping £27,000.
Stay flexible
While it’s important to remain focused on your goal – in this case your £1 million target! – you need to approach this with a degree of flexibility,” Maike said.
“Life is uncertain and your circumstances may change,” she adds.
For instance, taking time off to look after kids can affect how much your saving – unless you plan how to make it up later.
In some cases it could slash thousands of pounds off your retirement pot if you don’t plan ahead.
“Review your retirement plans regularly to assess whether you’re on track, and remember there are options available if you need to alter your approach,” said Maike.
“For example, phasing into retirement by working for a little longer, or looking at a ‘side hustle’ which enables you to boost your income.”
Of course the earlier you start, the more time you have to save enough for retirement – and some are even putting money aside for their kids already.
One money expert has explained how to give your kids a £2.1million pension pot by saving £7.90 a day in their first 10 years.
Don’t forget that your state pension can boost your retirement income – though it certainly won’t be enough alone to support you.
It pays to make sure that you’re not missing out on money you’re entitled to so check your forecast earlier rather than later.
Even if you start paying into a pension later on or can’t afford to pay in more, you could increase your savings by changing how you’re pension is invested.
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