Watch out if you want to retire at 65!

The cost of lower earnings, redundancies and fallen property and stock markets has taken its toll on us, and our retirement plans haven't been immune, but we can help.

Baring Asset Management has found that 3.5 million adult workers (10%) have no plans to retire – ever. That's one in ten of us. This compares with an earlier survey of theirs two years ago, where 100% thought they would quit at some stage.

Furthermore, in 2008, just a small number weren't sure when they'd retire, but now almost 15 million are uncertain. The economy, and many of us personally, have taken a battering.

Healthy realism

In many ways, this survey means we're getting more realistic. Even without the financial crisis, surveys have shown for years that most of us have been optimistic about our retirement ages, with vast numbers of workers believing they'll retire between 50 and 60.

For most of us, this won't be the case. On top of recent economic troubles, we're living longer. Therefore, most of us must work longer to save more money and to reduce the time we need to stretch out our retirement pots. I think the earlier we recognise this possibility, the less hard it should hit us later on.

Let's get positive again

A commentator for the German edition of Focus Money wrote recently that if we work for two extra years and live three years longer than the previous generation, we shouldn't complain: we have gained an extra year's retirement.

However, that doesn't mean we have to just accept a long working life. We can take steps to reduce the time we have to work and, the earlier you act, the earlier you can retire. Here are some tips:

More contributions, sooner

Let's get the most obvious out of the way: if you put more money towards your retirement, you're more likely to retire early. This is even more likely the earlier you start; if you contribute £200pm now for ten years and £100pm afterwards for another ten, you're more likely have more retirement savings at the end than if you invest £100pm now and £200pm later. Perhaps you could then bring forward your retirement date.

Review your pension

Pensions and shares ISAs (the two most common ways to invest for retirement) have been getting gradually cheaper for people who bother to switch, and cheaper usually means better returns. If you can reduce the cost of your pension by 1% per year it'll probably make a significant difference after ten years and a huge difference after 30. We're potentially talking tens of thousands of pounds difference here. You can read about some very cheap options in Two simple ways to invest better in shares.

Is your pension good enough?

If you have a pension through your employer, don't assume that it provides enough to give you a decent retirement at a satisfactory date. You could use this four-step guide to a comfortable retirement to estimate how much you need to be putting aside. Furthermore, many of us just accept the default retirement fund when taking a pension through our employers, but these usually aren't worth their costs. Again, see Two simple ways to invest better in shares.

Review your circumstances

Once a year, consider if your circumstances have changed enough to re-think how you save for your retirement, and how much. If you now have a different top rate of tax, or if your employer decides to offer better or worse pension benefits, for example. Some changes may mean you decide to contribute more or less to a pension or to start using ISAs more.

It's only money

Whilst you're reviewing your retirement fund, try not to let massive falls in its value (say, due to a stock-market crash) worry you too much. Crashes are normal, as are the accompanying barrage of news articles saying the world's going to end. So far, long periods of losses through investing have been few and far between, as stock markets recover. However, if you're getting closer to retirement and aren't planning to keep investing afterwards, you should start thinking about exiting shares or any other investments that tend to be more volatile. You don't want a shock when you can see your retirement approaching.

Save less, pay down more debt

With savings earning little interest, it'll often make sense to reduce your savings and pay off debts faster, starting with the debts with the highest interest rates. Overall, this'll make you richer (or less poor) more quickly, and that'll mean you can retire earlier, as long-term and repeat borrowers generally won't retire early. Ensure you'll still have access to enough cash in an emergency, though.

Penny pinching and deal making

You don't have to give up any of your luxuries to make extra contributions to your retirement fund, you just need to be more price aware. If you can find an extra £500 a year by being disloyal and searching for better deals, after 15 years you might have an extra £12,000 in your retirement pot (assuming a 6% return – it could be more or less). At present, the average total retirement pot is only about three times that much!

Don't let disasters ruin your plans

Recent question on this topic

• assilem23 asks:

  How best to save for my retirement?

  • 
    JoeEasedale answered "No one can tell you what is best. The crystal ball has not been invented yet. What is sure is that..."
  • 
    MikeGG1 answered "A pension scheme is a very inflexible form of investment. At the moment you can't take..."
  • Read more answers

Ensure that you've built diversity into your retirement plans, so that a calamitous event can't ruin it at the last moment. By that I don't just mean invest in lots of different companies and geographical areas, but don't put all your money with one pension provider, for example. (In other words, don't put all your eggs in one basket, nor all your baskets in one larder!) Furthermore, consider your own home and savings, too. Read more on diversity in The danger of using property as a pension.

Unexpected events

There are other unexpected events that could hit your plans for six. Make sure you have all the insurances that are appropriate for you and your family's circumstances, which may be income-protection insurance (a very under-used insurance, largely because salespeople don't seem to get much money for it), home insurance or life insurance, for example.

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