A pension plan is one of the best ways to keep yourself and your family financially stable after you have retired from your current work. Paid in regular monthly amounts, such accounts can be funded by employers, insurance corporations and other government institutions.
To prevent any untoward problems in the future, you should be fully aware of your pension payments and benefits. Here are several important facts you need to know about your retirement plan:
- The amount you should contribute to your pension pot should be half your current age (in percentage, of course.)
For example, if you are 40 years old, rule of thumb dictates that you should allocate 20% of your salary to your pension plan. This is a big amount, but you can put it into your retirement savings by increasing your contributions every time you get a pay raise.
- Save into your pension plan at the earliest possible time.
Starting at age 50 or older means you need to dedicate 25% (and more) of your salary to your pension pot, as rule of thumb. Instead of trying to catch up – which can be difficult if you are paying debts or mortgages – the best way to create a healthy retirement savings is to start while you are still young, single and at the prime of your career. That way you will already have a significant amount of savings, and you will not be pressured to contribute everything you have in your pocket.
- A pension can help you circumvent the government’s tax cuts.
As the citizen of the country, the government is entitled to take a certain amount – tax – from your pay slip. However, if you want your tax payments to go into good use, what you need to do is to apply for a pension plan. This retirement account qualifies for tax relief, so instead of letting your hard-earned money end up with the government, you can have it directed to your pension plan instead.
- You cannot withdraw cash from your retirement fund on demand.
Generally, the money in your pension pot cannot be withdrawn until you are 55 years old. By then, you have the option to withdraw 25% of your savings as lump sum, and have the rest given to you as the months go by.
Having a pension is a good thing especially if you know how to take care of your money pot. By being fully-informed of these pension know-hows, you are sure to live comfortably (if not lavishly) after you retire.
What do you think about these pension constraints? Are they worth the inconvenience or does the forced savings toward your retirement worth it?