Ten top pension tips

If planning for your retirement has been bottom of the agenda, it's time to make a change!

If you have spent any time at all thinking about your finances in retirement, you'll already know the sooner you do something to plan for the future the better. Leave it to the last minute and I guarantee you'll live to regret it.

Luckily, retirement planning doesn't have to be the onerous, mind-numbing task you might think. Put these ten tips into practice now, and you'll be all the better for it.

1. Choose how you'll pay for your retirement

Pensions are the conventional way to save, but not everyone likes or trusts them. Some prefer to use capital appreciation in their property to fund their retirement lifestyle. But remember your finances will then be totally reliant on the performance of single asset: your home. If house prices drop as you approach retirement, you could be in trouble.

If you don't want to lock your money away in a pension or be tied into an annuity (which converts pension money into an income at retirement), ISAs are more flexible while offering similar tax-efficient benefits. You can combine different methods of saving for retirement together if you wish.

2. Decide when you want to retire

Your age now and the age you want to retire should be a key element of your planning. If you're 20 and you want to retire at 65, you can afford to save less and still achieve the same target as someone who is already 40. In the other words, the earlier you start the better. Of course, if you want to retire early, you'll need to save even harder, while retiring later in life could reduce the burden of saving now, and cut back the number of years you need to finance once you eventually stop working.

3. Decide how much you should save and how much you need to retire on

When you decide how much you should save it helps to have a target. You can use this pension calculator to pin down that all-important figure. You may be able to live quite comfortably on around half the salary you earned when you were working if you expect you will own your own home outright, but of course this will vary from person to person. If affordability is an issue, try to save as much as you can now. You can always increase your payments in the future to catch up.

4. Decide how you'll invest your savings

Whether you chosen a pension or an ISA - or both - you'll also need to decide how to invest your contributions. This can be a little tricky especially if all this is new to you.

You could start off with a straightforward index-tracking fund which mirrors the performance of a specific share index - often the FTSE 100 or FTSE All Share. An index-tracker aims to replicate stock market returns as closely as possible by investing in all the companies quoted on the index. If you want a more hands on approach you can choose your own investment funds. Take a look at these articles: How to pick your first pension, How to invest your pension and How to pick the best pension funds for some pointers.

5. Top-up whenever you can afford to

It's important your pension or ISA is as well-funded as possible (within the contribution limits). Many of you just aren't saving enough and risk leaving yourselves short once you retire. Whenever you get a pay rise or bonus in the future, for example, you should consider using some of it for retirement planning. You should also think about increasing your contributions every year to combat inflation.

6. Keep track of performance

Once your investment is up and running, it's sensible to keep an eye on how well it performs over time. This is the only way to check you're on track for reaching your target retirement fund. Don't forget any investment choices you make can be altered if you're no longer happy with them. Look out for the warning signs in Why should transfer your pension. (The principles in this article apply to ISAs too.)

7. Keep track of all your investments

If you're well into your working life, the chances are you already have an array of pension schemes from different employers. These forgotten plans often perform badly as they're allowed to fester for years with no attention from you. Make the most of all your savings by keeping all your paperwork and statements in an easily accessible place and review them regularly as explained in Tip 6.

8. Don't panic about temporary dips

Always remember pension and ISAs which are invested in the stock market will peak and trough over time. If a market or sector you're investing in is down in general, don't panic if/when your investment drops in value too. This is all part of investing. You should only be concerned if the value falls more than its peers, or it takes longer to recover than the rest of the market.

9. Lost? Speak to an adviser

If you're still all at sea when it comes to retirement planning, seek some independent advice. I know some of you are wary of financial advisers, but get a recommendation from someone you know. You should also check the adviser is suitably qualified and specialises in retirement planning. These days, advisers will always tell you their fees before carrying out any recommendations on your behalf.

10. Look at our get ready to retire guide

Once you've followed Tips 1 to 9, your investment should tick along nicely until you get closer to retirement. When that day approaches make sure you take a look at our Get ready to retire how to guide where you find out how to maximise your savings for a wealthier retirement.

If you're pondering over the best way to plan for your retirement, why not pick the brains of other lovemoney.com readers using Q&A.

This is a classic article that has been updated for 2011.

More: State Pension to jump by £40 a week | How to buy the right annuity