Planning for your retirement

Retirement planning

You should still plan for your retirement, even if you're in debt. The good news is that it doesn't have to be a chore

Planning for your retirement and choosing a pension can be a minefield. Bear in mind these basic facts:

1. We are all living longer. More people are living longer than ever before. If you hope to retire at 55, you could easily be alive 30 years later. You need to save enough money to see you through.

2. Consider how much to pay into your pension. A quick rule of thumb suggested by many experts is to take the age you first started your pension, halve it and save that percentage of your income until you retire. So if you started a pension at 26, so they say, you should save 13 per cent of your income. Bear in mind that your payments should increase as your income rises.

3. There's a limit on how much you can pay. If you have a personal pension, you are entitled to tax relief on contributions. But there are limits to how much money - or percentage of your income - you can pay. If you are 35 or less, you can pay in 17.5% of your income or just less than £17,000 a year. See below for further limits:

Age on 6th April:

35 or less: 17.5% of income
36-45: 20% of income
46-50: 25% of income
51-55: 30% of income
56-60: 35% of income
61 or over: 40% of income

Over the page: other valuable tips

4. Think carefully about your State pension: Experts predict that in years to come, while the State pension may still be around, it will hardly buy anything. At the moment the basic state pension is £66.75 for a single person a week, £106.70 for a married couple. The over 80s get an extra 25p per week.

5. There is always help available. The following organisations may be useful:

The Pensions Advisory Service. Telephone helpline: 020 7233 8080
Pensions Registry, PO Box 1NN, Newcastle Upon Tyne, N199 1NN. Telelphone: 0191 225 6393 (Helps track down your pension rights from a former employer.)
Find an independent financial adviser via the IFA Promotion website
State pensions explained at the Department for Work and Pensions

So now that you know a little more about your retirement options, you just need to start saving. Use these five painless methods:

1. Consider letting your employer do it. If you never see the money, it's not so hard to put it away in retirement accounts. So let your employer do it for you direct from your wage. If you are self-employed, don't wait until the last minute to stash money away.

2. Make retirement a priority when job hunting. When you are looking for a new job, seek out employers with good retirement plans. Employee stock option plans may also provide a great boost to your retirement stash. Those plans let you buy stock at a bargain price, producing instant gains as well as potential future profit if the stock continues to flourish.

Over the page: get smart about your finances

3. Get smart about your finances. Making savvy financial decisions in all areas of your life will mean you'll get to where you're going easier and faster. Pay off your credit cards as soon as you can. When you buy a home, don't fall in love with the original features; think about the resale value and get the best house you can for the money. Shop smart for groceries, clothes and entertainment, and your money will grow and grow.

4. Scale down rather than up. To build a retirement nest egg, scale down your lifestyle and get used to living on less. When you get a raise, put it away for retirement.

5. Rely on professional advice. Just as some dieters do better in a diet program than on their own, many investors do better when they have a professional guiding them.