Pension planning is a huge problem without a solution to please everyone. Therefore, it will continue to be avoided and postponed for as long as possible by the political elite. I can’t say I blame them either.
That means the YOU will have to take responsibility for your own retirement savings. Ideally, you should start immediately. Failure to do so may result in personal catastrophe for you later in life. Your ability to survive in the modern world is entirely dependent on your ability to pay for goods and services. Without that ability, you may be in grave trouble.
Future governments, as already discussed are going to have real problems paying for the retirement of their population. If, when you get to retirement age, there are no more state nursing home beds available, what will you do?
Since this report is being used online, it could be read in many different countries. Therefore, I am not going to attempt to explain how pensions operate as I am most used to the UK system and it may be worthless information for you.
The problem is that pensions are a very complex area of finance. Generally, your government would like you to save towards your retirement as that takes some responsibility away from them. To try and encourage you to save, they offer tax incentives.
Many of these tax incentives are in the form of income tax relief. Obviously, this costs the government money. Quite rightly, governments are concerned about being taken advantage of by savvy investors. So they apply many rules and conditions to these schemes.
At the time of writing, the UK has 8 (yes eight) sets of pension legislation in force. In 2011, this will be reduced by new rules designed at simplifying the system. I don’t think I would be judged harshly by fellow financial colleagues for saying that the UK system is almost impenetrable to most professionals. What you, as the lay person are meant to do, I have truly no idea.
Therefore, it is vital that you obtain competent advice from a professional in your own country. Once you have done that, the best advice I can offer is that you save as much as you are able to afford each month. Then find a fund to invest in which offers you the highest return (or yield) each year for the lowest amount of risk.
At the same time, the paragraph above is both the most simple and most powerful pension planning advice you can get. Please read it again. If you are able to save in a tax free or low tax environment offered by your government, do so. Take advantage of the tax breaks as much as you can.
If you have been following the above closely, you may be thinking that I am recommending that perhaps a bond fund or a managed fund might be suitable. Generally these are of low / medium risk. I personally believe that this type of fund is suitable for pension planning. High risk funds should not be for your pension money. Avoid the temptation to take big risks and feel like a high roller. Instead, find a steady performer.
If you are able to join a scheme offered by an employer, do so. As a rule, the employer will contribute in addition to your payments. This will help the fund to grow more quickly. If you are able to join a company scheme and have a private scheme running as well, this is the best option. It will enable you to fund your retirement in most circumstances. If something happens to your employer, you will still have some pension money safely set aside.
In all forms of financial planning you must try to fully understand the risks you are taking and then find solutions to diversify that risk for your own safety.
I hope that this section has been able to alert you to the problems that you may face without being too alarmist. Whatever you choose to do, it is vital that you do something and if you are doing something, that you start doing more. Otherwise, please don’t say that you were not warned.