How To Start Preparing For Retirement In Your Twenties

March 13, 2013 By 3 Comments

preparing for retirementWith the recent introduction of new government guidelines on pensions, there’s never been a better time to start looking at how to fund later life. The reform includes a new flat-rate state pension worth an estimated £144 per week in today’s money, to provide the UK’s elderly with ‘the minimum’ they will need.

If you’re in your 20s, you may feel too young to be thinking about retirement, particularly with the government’s plans to bring the state pension age to 66 by 2020 and 67 by 2028.

However, the reform has been established to put more responsibility on the individual to make adequate preparations for later life by making only basic funds available on the state pension. Therefore, it’s a good idea to start thinking about what savings to make as early on as possible…

Key points for your 20s:

  • Clear your debts
  • Check out your company pension plan
  • Open an ISA

Clear Debts

You’ve probably got yourself your first proper job in your twenties, having possibly been to university or traveling since college. So, first thing’s first: you need to get straight.

Depending on if and when you went to University, you can probably expect to have a student loan, and the reality for many is that there is some unpaid debt on credit cards and loans.

It’s easy just to keep paying off the minimum every month, when you do this, you’re just covering interest and the monthly payments are doing nothing to reduce your debt.

Formulate a plan to pay off expensive, unsecured debt as a priority. A good way to do this is set up a direct debit to take a certain amount from your account on payday, so you don’t see it and have no opportunity to spend it!

Company Pension Plan

As of October 2012, the vast majority of the UK’s employers are now legally obligated to enroll all of their employees (aged 22 and over) into a pension scheme.

This has to be the easiest and more lucrative way of accruing resources for retirement – it essentially acts as a pay rise. When you contribute to your company pension, your employer will also make contributions on your behalf based on the percentage of your salary that you commit each month.

It’s never too early to start, and because it’s taken out of your wage before you get a chance to see it, you won’t have a chance to miss it!

ISA

If you feel like you do have some disposable income to squirrel away, then one of the best places for young people to grow their savings is a tax-free ISA.

Choose an ISA where you are still building financial resources for the future, but maintain flexibility in terms of accessing money just in case you find yourself in need of it, for example, when you invest in property.

Retirement may seem like a long way off, but the earlier you start building a nest-egg, the easier you will make saving during your thirties, forties, fifties and even sixties.

This article was contributed by Laura Moulden on behalf of Cheselden; specialists in continuing healthcare funding.

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Nuts and Bolts of the Junior ISA

November 16, 2012 By Leave a Comment

Saving for your children’s future has never been more important. With the increase in tuition fees hitting this year’s freshers, the cost of University in the future is starting to become clear. And with so many young people struggling to get on the property ladder, it’s never been clearer the need to put some kind of savings plan in place for your kids. For those children born after 2nd January 2011, a junior ISA seems like the ideal option.

But, with so many junior ISA providers on the market, all offering different products; which do you choose? Here’s a quick guide to choosing the right junior ISA.

What is a junior ISA?

A junior ISA as provided by Sippdeal, is an individual savings account, specifically for children, offering various tax advantages. They can be opened on behalf of children born after the above date, who fall into one of the following categories:

  • They are under 18
  • They live in the UK; and
  • They don’t have a Child Trust Fund account already in their name

As is the case with adult ISAs, there is a yearly ISA allowance, able to be paid in each year. For junior ISAs this is £3,600 each year, which can’t be carried over into the next year.

The ISA is opened on behalf of your child, but it is in their name and able to be drawn by them once they reach 18. Anyone is able to pay into the ISA making it an ideal savings vehicle if friends and family members want to make a contribution for the future.

What are the different types of junior ISAs?

There are two types of junior ISAs; cash and investment. Both have their pros and cons, so the decision is really up to you.

Here’s a quick rundown of the factors that should form the basis of your decision.

Safety

If you’re looking for safety, then a cash ISA is the best way to go. As long as your funds are placed with a reputable financial institution like Sippdeal, you’ll know the balance of the future nest egg isn’t going to fall. Interest rates aren’t always high, but you’ll know that whatever you put in will be there when they turn 18; plus whatever you make in interest.

However, the downside of this is that if the rate of inflation increases at a faster pace than the interest rate you could actually end up losing out; despite the increase in the savings.

The chance to really make their future

The second option; an investment ISA enables you to gain a significant return on your investment. By using the tax efficient savings wrapper of an ISA to invest in stocks and shares wisely you can build a large nest egg for your child’s future. However, as is always the case with any kind of investment there is a risk. Not only could you potentially lose out on any benefits of the investment, you could lose the original investment too. Choosing an investment junior ISA requires a little financial knowledge and advice; if you do it properly however, it could well be the right decision.

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Why Life Insurance Matters

October 4, 2012 By Leave a Comment

Preparing yourself for what happens later in life is important. You can’t be too sure about what’s around the corner, so having something for you and your loved ones to fall back on in extreme circumstances. Building up savings in your bank account could help with that, but a better way to guard your loved ones against future financial instability is to take out a life insurance policy. As a visit to lifeinsurance.org.uk will prove, life insurance is important, but why should you have it?

  • It helps to pay for funeral costs – when someone dies, one of the first things their family does is to arrange burial or cremation and a ceremony to help celebrate their life. While arranging a funeral is very important, it can also be expensive, with a number of family members and close friends of the deceased chipping in. Most life insurance policies pay out a lump sum, some of which can be used to fully cover funeral costs.
  • Paying off mortgages – mortgage life insurance policies are available for mortgage holders who worry about being able to pay it off in full before they die. Providing that you’ve paid part of the mortgage off over time, when you pass, the remainder will be paid off because you’ve taken mortgage life insurance out.
  • Life insurance helps your family’s finances after you’ve gone – a sudden death in the family could really harm their ability to pay the bills, especially with a funeral to pay for. However, if a life insurance policy pays out, the money received could help to ease the pain a little and make paying for the essentials less of a challenge.
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An Introduction to Annuities

October 2, 2012 By Leave a Comment

Preparing for retirement can be one of the most daunting tasks we ever undertake in our lives.  How are you supposed to set aside enough money to last from when you retire for the rest of your life? There are actually many products available that you can use to help secure a vibrant future!

When you have finally saved what you think is enough for retirement, you do not want to worry about the upward and downward movements of the stock market.  Some retirement plans or pension plans organized through your employer will invest in an annuity.  The annuity will give you a fixed income for a set duration of time after you retire.

If you are anything like me,you will want to be risk averse, and an annuity is one of the best ways to minimize risk.  In retirement, you cannot bear fluctuations in the value of your portfolio, because if you withdraw money when the market isn’t performing well, you are compounding the loss. Annuities can be viewed as a type of insurance for your retirement income.  You contribute money to the annuity for the guarantee of an income in the future.

How is the value of an annuity calculated?

The value is determined by factors including the current value of the dollar, the number of years until you would like to begin receiving an income, the rate of inflation, and your life expectancy.  Taking these and other factors into account, an actuary will calculate the value of your annuity.

Put simply, if you live longer than expected, you will get back more than you put in. However, if you pass away sooner than anticipated, you could end up receiving less than what you contributed.

Shopping around

Many people don’t realize they can shop around for an annuity and pick an annuity provider that can best suit their preferences.Popular options include inflation-adjusted annuities,and enhanced annuities, which are designed for people with a serious medical condition where life expectancy is reduced.

There is also a range of options available to when in terms of you would like to receive your payments.  Whether you want to receive your payment at the beginning of each month, the beginning of the year or anywhere in between, an annuity provider can work with you to best suit your needs.

Whatever your situation, if you are nearing retirement and you haven’t already done so, an annuity is definitely something to look into.  Talk with your financial advisor to see which product would be most suitable for you.

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Roth IRA March Madness Style!

March 27, 2012 By 23 Comments

Roth IRA, IRA Market, This That and The MBA, Christopher@ThisThatandthembaShhhhhhhh…..can you hear that….that’s right  baby it’s the Roth IRA Movement.  So here is how the movement got started; Jeff Rose went to speak at his alma mater and polled the soon-to-be graduating seniors, and not a single one of them raised their hand when he asked if they heard of the Roth IRA.  Here we are today a group of about 150 bloggers preaching to the nation and hoping they listen.  For my friends following along on twitter it’s: #RothIRAMovement

In case you were one of the ones polled, here is what a Roth IRA is:  The Roth IRA is a retirement investment vehicle where the premiums that are invested are after tax.  This means that when you are ready to take the distributions that they are not taxed.  The money that you invest can be invested in stocks, bonds, mutual funds, CD’s and even real estate.

There are annual contribution limits for the Roth IRA:  For 2012 they are $5,000 and if you are over 50 you can contribute up to $6,000 assuming you fall below the income limits.  You may also qualify for catch up contributions as well, be sure to talk to your financial advisor for more details.  The income guidelines for 2012 are referenced below:

•Single or head of household: you must earn less than $111,000 to fully contribute to a Roth IRA
•Married filing jointly or a qualified widow: you must earn less than $173,000 to fully contribute to a Roth IRA
•Married filing separately: you must earn less than $10,000 to fully contribute to a Roth IRA.

The number one reason why I love the Roth IRA is the flexibility.   As an adult in my late 20’s, I am looking for flexibility in my investment portfolio and the Roth IRA delivers just what I need.  The Roth IRA is flexible if you need to take a distribution to purchase a house…no problem.  The Roth IRA will allow you to save for the kiddie’s college fund…no problem!  You can withdraw your contributions at any time with little restriction, and you don’t have to pay it back like a 401k and there is no penalty!  After you have had your account open for 5 years you can access the earnings without paying tax if your situation fits one of the “qualified” reasons.  The Roth IRA allows me to save but also have the ability to tap the money should I ever need it.

I hope to be living the lavish life when I retire and the great thing about this little retirement product, I won’t have to worry about paying taxes on the distributions.

It is very important that even your little brother who just started delivering the paper start a Roth IRA.  The great thing about the Roth IRA is that there are no age requirements to start an account, so he can!

While you are at it be sure to check out some of the other great sites that are focusing on the Roth IRA Movement today!  Follow us on twitter @thsthtandthemba @jjeffrose

PHOTO BY: SnapHappyGeek Jazzed up by Christopher!
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