Paul Barnfather, Specialist Dental Financial Adviser for Wesleyan Financial Services, shares how there is a cost when delaying financial planning for retirement.
Understandably, retirement planning might not be at the top of your ‘to do’ list with concerning media stories around rising costs of living and balancing working in a busy practice with commitments outside of work.
That being said, the sooner you begin planning for retirement, the less of an impact it’s going to have on your monthly outgoings and the more time your retirement fund has to grow for you to live the lifestyle you want to – without having to make sacrifices.
Here are some principles on why retirement planning is best started early:
The cost of delay
Retirement can feel so far away in the future that it’s often one of those financial planning areas that get shelved for another day. However, every year you delay your retirement planning, the more you will need to save to meet your living expenses and timelines for retirement.
For illustrative purposes on what we mean by cost of delay, if you were looking to reach a retirement goal of £1,000,000 (to keep you under the Lifetime Allowance) within a 30-year timeframe and wanted to start saving today, from an investment perspective you would need a monthly contribution of £2,032.
If you wanted to delay investing for retirement for ten years, that monthly commitment could jump to £3,393.
Another plus point for pensions is that they attract tax relief, meaning lower contributions would be required to hit your target. Let’s take the £3,393 contribution as an example – the tax relief over twenty years could reduce your monthly payment to £2,714.4, saving you £678.60 per month.
If you are a higher rate taxpayer, you can claim your additional tax back via an increase in your personal allowance, giving you more tax-free income.
Imagine what that extra income could mean for your rather than having to use it to play catch-up on your pension later on in life.
What about the market climate?
Understandably, the rising costs of living and inflation rates could be causing more pressing issues that may need to be addressed as a priority – here I would stress that you need to do what’s right for your personal circumstances, as advice in relation to starting a pension plan early is for those that can afford to.
For those that can afford to, keeping an eye on long-term financial planning and getting the ball rolling is ultimately going to help you achieve lifetime milestones when you want to.
Those who are relying primarily on their NHS pension scheme in retirement should know the scheme is index-linked to inflation, which provides peace of mind during times of high inflation that we are currently experiencing. It also isn’t invested, unlike personal and other common workplace pensions. Instead, it is an unfunded, contributory public service occupational pension scheme. This means you won’t have the concerns of investment performance, which isn’t guaranteed.
For those looking at personal pensions - which could be particularly important for the influx of NHS dentists who are transitioning to private practice - these are still a tax-efficient way to save for your future.
With every contribution you make, you’ll benefit from at least 20% tax relief (subject to annual allowance). The pension provider will often claim this for you and add it to your plan. If you’re a higher rate taxpayer, you may even benefit from more tax relief via your tax return.
In terms of market volatility and the effect on performance for a personal pension, it’s important to remember a fundamental investment principle – time in the market, not timing the market. By this, we mean that any kind of investment should be approached with a long-term view, an approach that aligns with saving for retirement.
This allows investments to ride out fluctuations and dips in the market, potentially providing you with greater growth than you would see in a standard savings account. Of course, investment performance is not guaranteed, and you may get back less than you invest. It’s about balancing your attitude to risk versus the potential reward. Seeking professional advice could help you here.
The first pound you save earns you the most money
Similar to investment principles, the first pound you save in your personal pension has the longest to accumulate a return on investment.
Compound interest, the financial friend of early savers, comes into effect. If you make contributions into a UK pension scheme where interest is paid annually, you'll keep earning interest on each previous year's interest. Therefore, the earlier you start saving into it the more power it has to grow.
Whether you are a member of the NHS pension scheme or have planned your own personal pension provisions (or both), pensions are a tax-efficient way to save your hard-earned money – which is ultimately why now is the best time to start saving.
You can book a no-obligation financial review to get the ball rolling on your retirement planning by visiting www.wesleyan.co.uk/dental or calling 0800 316 3784.
Please note: Facts and figures are correct at time of print.
Tax treatment can depend on individual circumstances and may change in the future.
Based in and around Manchester, Barnsley and Sheffield, Paul is a Specialist Financial Adviser for Wesleyan Financial Services looking at risks, opportunities and fine-tuning financial plans for dentists and their practices.
Advice is provided by Wesleyan Financial Services Ltd.
‘WESLEYAN’ is a trading name of the Wesleyan Group of companies.
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