A common concern among today’s youth is whether or not they’re saving enough for their retirement. Do you have an employer who matches your contributions to a pension plan?
And have you been regularly contributing to it? If so, you’re already miles ahead of many other 30-somethings who haven’t yet started contributing to a pension.
Many of today’s young professionals are self-employed, and organizing a pension plan is much more difficult for them. Retirement might be a long way away, but you’re going to be in a tough spot if you wait too long to start saving for it. Here are some other common pension mistakes.
1. Being an Inactive Contributor to Your Pension Fund
Some people seem fine with the idea that a certain percentage of their pay automatically gets put into a pension. They don’t think about it ever again.
It might as well be a gym membership. In reality, it’s an expensive mistake to ignore your pension and let it be so automatic. Instead, be an active contributor.
John, an executive at Smart Pension, agrees that keeping track of your pension is important. “Check your bank balance often, and check your pension balance often,” he says. “Always keep yourself on track, and brainstorm ideas to increase your pension while you actively look over the numbers from the past year or so.”
I’m sure you’d increase your contributions if you knew how much you actually needed to save. But that would require you taking the time to figure out the math for yourself with regards to how much you need and when.
If investments are involved, it’s a mistake not to actively check on them and see how your funds are performing. If you aren’t actively involved in your pension, it could cost you a bunch of money.
2. Failing to Understand Your Workplace Pension
Many employees opt in or automatically join their employer’s workplace pension plan at what they think is the standard rate.
You might think that a certain percentage of your pay is being put into a pension plan. You might think your employer is matching it—that this is the norm. However, it might be worth your while to speak to HR about your options.
You might find out that if you increase your contribution, your company will actually raise its contribution and match the new, increased amount.
The workplace pension plan is one of the best employee benefits you can get. Failing to look into the nature of your pension is basically you turning down more free money from your employer.
3. Not Knowing the Fees Attached to Your Retirement Accounts
When you pay high annual fees on the funds in your pension account, the costs add up and work against you. So if you have an opportunity to choose a route that comes with a fee that’s even 1% less, take it.
There are low-fee mutual funds into which you could invest your retirement contributions. Low-fee options are worth exploring because, over time, those small fees add up tremendously.
4. Relying on your Property Assets to Help You in Your Retirement
If you’re asset-rich in the form of a nice home that you’ve invested in, don’t assume it will translate to you one day being cash-rich if you sell it.
The property market isn’t the safest bet on which to rely. You might end up in a position where you do not want to or cannot sell your property.
5. Not Understanding the Tax Breaks That Come With Having a Pension
The government encourages you to save for your retirement by giving you a tax break if you contribute to a pension.
Tax relief from the government can reduce what you owe them each year, and also increases your pension fund.
You’ll likely get a contribution to your pension from the government as a tax break. Some of your money that would have gone to the government as income tax goes into your pension instead.
Your employer takes your pension contribution and the government’s contribution as tax relief from your pay before deducting tax from your paycheck.
Educate yourself about tax thresholds as well. If you can figure out a way to earn below a certain threshold, you can get an even bigger tax break and save a ton of money in the long run.
Your individual earnings and circumstances do affect how much you get back from the government, so it’s important to educate yourself in order to avoid costly mistakes.