How to plan your retirement finances | Money Tips

For a young working professional the thought of retirement may be one that hardly crosses the mind as it is so far into the future. However, no matter how far away that time may be it?s vitally important to begin to think about it and plan for it sooner rather than later. The state pension, in its present form, may be unsustainable in the future as the number of elderly members of society ever increases.? Financial planning must take this possibility into account. Important issues, from the location of that dream retirement home and how it is to be paid for, to the responsible act of making a will should be considered: will writing costs are far from being prohibitive. A will is essential once you have acquired financial assets, particularly when you own a property. Although for some people it may seem a little too much to cope with, breaking down financial planning can make it easier to understand.

Pensions and savings

Firstly, it?s important for a young professional to decide the type of pension account or accounts they want to invest their hard-earned money into. The level of an individual?s personal income plays a major part in establishing what accounts they can participate in and what tax benefits they?re entitled to. Those who fall into a lower-income bracket, for example, might be entitled to the Saver?s Credit which partially subsidies retirement savings.

401(K) plan

British Expats in American might have a 401(k) plan, this would be a scheme available through their employer and have a valuable retirement planning opportunity. This account can provide tax-deferred growth and up-front tax deduction as well as additional benefits through automatic savings. Those not eligible for a workplace plan can opt for a traditional individual retirement arrangement (IRA), which also offers opportunities for limited tax-deferred growth.

Annuities

A personal pension is paid out upon retirement with the purchase of an annuity with the saved funds. This pays the holder a guaranteed income throughout the remainder of their life. There are a number of options available, however, over the last few years a lot of investors are only just about getting back their money due to poor annuity rates.

Once one or two accounts have been chosen, it?s then important to decide how the money will be invested. This is a major factor, as it will determine how much an individual has accumulated once they reach retirement age. There are five basic investments that can be made, each of which comes with different advantages and disadvantages.

• Buying shares is a way of purchasing a direct share in a corporation. They provide a way in which to beat inflation, however, if a business goes bust, it might mean a total loss.? Any capital gain can be protected from tax by using a share ISA.? There is a limit on how much can be invested through an ISA.
• A mutual fund is where investors? money is pooled together then invested on their behalf by a professional manager as stocks, bonds or both. They?re then traded at the end of the market day.
• An exchange-traded fund (ETF) works in the same way as mutual funds but they?re traded throughout the day and are less expensive to own.
• Another option is bonds. These are loans from an investor to an issuing entity. The entity can take the form of any business, from private to governmental. Although their value doesn?t rise as much as stocks it usually remains stable.
• Simply leaving the savings as cash in a savings account. This is the safest form of investment but tends to suffer more from inflation and at the moment interest rates are low.? Cash can be saved in an ISA that protects the investment from tax.? There is a limit on how much can be invested into an ISA each year.
• Many individuals regard investing in property as the safest place for their money.? Historically this has proved to be a very rewarding route to take.

Source: http://www.moneytip.co.uk/how-to-plan-your-retirement-finances/

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