Do You Have Investment For Retirement Plans?Summary: Some of the most important decisions that we will ever make as individuals relate to our investment for retirement plans. If we get this wrong, or do nothing at all - as many people do - our future lifestyle could be critically impacted. These pages look at saving options for retirement.
The first relates to getting help. Is there an organisation willing to help make your retirement plans? Many employers offer a retirement scheme to their staff. They generally perform some form of 'matching' in terms of contribution. This means that if the staff member saves (for example) 100, the company will add an extra amount. This extra amount is often equal to or greater than the amount being saved by the staff member. The terms of these schemes will differ from country to country, but they normally relate to the number of years of service at the firm. This is actually represented by the length of time that the employee has been a member of their pension scheme. The amount of pension paid to the employee is then based on a calculation involving the amount of their salary during their final years with the company and the total number of years in the scheme. Other schemes will simply be an investment for retirement scheme where the total amount saved (from the combination of employer and employee) is used to purchase an annuity income for the retirement years. The second question is, Can you make retirement savings in a low or no tax way? In many countries, government recognises that paying for the retirement of it's citizens is expensive. Therefore, if people are willing to make their own savings and reduce the burden on the state, their investments for retirement will be taxed at a much lower (or possibly zero) rate. Again, the rules differ from country to country, but the general principle is that if money can be saved for retirement in a way that is tax efficient, that ought to be the first choice for the saver. The nature of these schemes means that rules are usually put in place to prevent investors from taking advantage of them. This can often limit the range of possible investments - usually to stock market investments or collective fund based assets. Therefore, for wealthier investors, it may be wise to investigate a mix of assets and asset classes. Some of these would likely be within a low tax pension environment and some would be outside and taxed at normal rates. How much should I save? It is worth understanding that funding a period of not working that may last for 20, 30 or more years is not cheap. In fact, the cost to provide such an income can easily be in the hundreds of thousands! For many people, a retirement account of one million will simply not provide the kind of income that they were used to during their working life. Therefore, it can be said quite easily that savings for retirement should be made in the highest amount that a saver can comfortably afford. Without trying to be negative, for most people, the amount that they need to be saving each month to provide the retirement income they hope to have is well beyond their financial means. This is not an excuse to do nothing. It is simply a recognition that some lifestyle cuts may be needed during the working career and after in retirement. The general advice about saving for retirement is therefore quite simple. Start saving as early in life as you can, save as much as you can for as long as you can. The following pages offer more information about retirement planning: In the United States:
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