Your Retirement’s In Danger Unless You Take Action Now

There has been a slew of studies released recently on the dangers the younger generations face in retirement, from underperforming pensions over the next few decades.

Some of this is due to worries about future market returns. A lot of it is due to employers making such miserly matched-pension contributions. The main danger though is that most people will take no action to address any of these issues – or will act on it too late.

This video is so jam packed full of charts that we couldn’t recreate it as an article, but it’s essential viewing if you care about retirement. In the video, we’ve gathered up the findings of multiple reports that highlight the dangers heading down the road.

We’ll remind you of the importance of prioritising your pension, and the consequences if you don’t. We’ll look at some shocking statistics about pension awareness, and finally – we’ll tell you what you can do about all of this to get back on track to a comfortable retirement. Let’s check it out!

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The 8 Retirement Blunders To Avoid

Today we’re looking at 8 retirement blunders that you need to avoid. If you get your retirement strategy wrong, you will likely retire poor, and your later life will be unpleasant or even destitute but avoiding these mistakes will help you to retire rich.

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#1 – Not Saving Enough

According to, almost 4 in 10 British adults don’t have a pension, including 1.4 million people who are within a decade of retiring.

Assuming you retire at State Pension age, which will be age 68 for most of our audience including us, then you will need to have enough money tucked away to fund 14 years of retirement if you’re a man or 16 years if you’re a woman based on the UK’s average age of death. And of course, you may live far longer than this, so you need to factor that in.

Required retirement income, by lifestyle

According to a Which? Study, these are the annual incomes needed to fund different qualities of lifestyle during retirement. A single person would need £13k just to pay for the absolute essentials like food and rent. That rises to £19k for a comfortable lifestyle and £31k for a luxury lifestyle. Bear in mind that even the money required for the Essential lifestyle exceeds that of a full State Pension.

Which? go on to state that for a single-person household, achieving a comfortable retirement would mean a pot of around £192k alongside the State Pension to get to an annual income of £19k via pension drawdown, or to reach £19k using an annuity you’d need nearly £306k.

We don’t know how exactly they’ve worked this out, but we tend to use the 4% rule. With the State Pension providing around £9k a year, that means you would need to find an extra income of £10k a year yourself. So, using the 4% rule we would say you’d need a pot of £250k.

Also, many people are paying into a workplace pension without realising how little they are actually saving. The headline 8% that you get on auto-enrolment is total nonsense; it applies only to your qualifying earnings, which is earnings between a lower and upper limit that’s set by the government.

The lower limit is currently £520 a month, which means if your salary is £25k, then you’re contributing 8% on just £18,760. Your total pension contribution is just £125 a month, and remember you need hundreds of thousands at retirement.

Basically, if you’re a low earner, then you’ll barely be making a dent on your required pension size because that lower earnings limit makes up a larger proportion of your overall salary.

Most of our viewers will have even loftier ambitions and will be seeking to retire much earlier than when they qualify for the State Pension, and they might need to fund 40-plus years of retirement. People tend to neglect saving properly for retirement because it always seems like tomorrow’s problem.

#2 – Delaying Investing

Investing works best when it has time to compound. Compound interest or compound investment returns behaves like a snowball. A small snowball can roll and get exponentially bigger and rolls faster as it gathers more snow. This is precisely what happens when you invest. Plus, the more time you give to your pension to grow, the less you have to contribute overall making your monthly retirement savings far more manageable.

Don't delay - start today!

Hargreaves Lansdown produced this excellent graphic showcasing the impact of time on your projected retirement pot. The graph shows how much you will have at age 65 by investing £125 a month starting at different ages. Roughly speaking, every ten-year delay wipes out approximately half of the fund’s potential growth.

We actually think they have been very conservative by only using a 4% growth rate, which even ignores inflation. The impact of time would be even more telling had they based it on say an 8% return, which is what we think the stock market will return on average.

#3 – Never Reviewing Your Pension

Pensions are hardly the most interesting of topics and this is coming from a couple of guys who are passionate about investing. Our problem is that because its inaccessible for decades it just doesn’t have the excitement of a Stocks and Shares ISA – people want to get rich quick, which is the exact opposite of what a pension does. As a result, people tend to neglect the management and performance of their pensions which can be a very costly mistake indeed.

Research done by Hargreaves Lansdown found that only 37% of non-retirees had a clear idea what all their pensions were worth.

The biggest issue is likely to be the default funds being used in your workplace pension. Our research found that most default funds are investing in low performing assets with needless home bias to the UK market. We believe a globally diversified portfolio is likely to give the best balance of high returns and safety due to your exposure being spread across all geographic regions.

If you’re managing your pension investments yourself in a SIPP, which often provide the widest investment range and lowest costs, then it’s vital to review your pension every so often – perhaps yearly. Don’t forget to occasionally rebalance your investments, as over time your exposure to any one fund, stock, or region could drift away from your intended allocation.

It’s also a good idea to review the fees that your pension provider and funds charge. Fees across the industry have been cut in recent years, so always make sure you’re not overpaying with your current provider. We have an excellent guide which looks at all the best SIPPs, so check that out next.

#4 – Turning Down Employer Contributions

The good news is that every employer must pay into a workplace pension if you do. The bad news is that some people don’t take full advantage of this and are effectively turning down free money. Essentially any money you contribute gets an instant 100% return.

There are very few reasons that we can think of where it makes sense to not pay into a workplace pension up to the maximum matched percentage. Otherwise, you’re just throwing money away.

#5 – Only Using A Pension

There are many ways to build wealth and investing in a pension is just one of them. Unfortunately, it seems that the average person – at least those saving for retirement – only ever considers using a pension.

Ben’s (MU co-founder) preferred wealth builder is buy-to-let property. It’s obviously not quite as effortless as a pension but there many other benefits, including leveraged gains and the ability to access the money at any age. In fact, we did an entire article and video demonstrating how you can make 25% annual returns in property passively, which you should check out if property investing is of interest to you.

Another excellent way to build a retirement pot is using a Stocks and Shares ISA. These are very tax efficient as they avoid most taxes such as capital gains tax, which means your investments can grow unopposed from the taxman.

The second advantage of ISAs is you can withdraw the money whenever you like. This flexibility makes them incredible when used alongside pensions as you can effectively retire early and use the ISA to bridge the gap between your early retirement date and when your pensions become accessible.

Our third way we love to invest is using a spread betting account to invest in financial futures. This is super complicated and extremely risky and probably not suitable for most people, but for transparency we’ve included it here.

We use 3x leverage on this part of our portfolios to supercharge our investment returns. If you’re an experienced investor you should check out these articles/videos next [Spread Betting Startegy Overview, Step-By-Step Guide] where we explain exactly how we use spread betting to earn mega returns.

#6 – Assuming The State Will Provide

Research in 2020 found that 1 in 6 workers over 55 had no pension provisions other than the State Pension. Frankly, these guys are in serious trouble. As we mentioned earlier the State Pension is currently a little over £9k a year, which is £180 a week and this does not even cover the most basic of lifestyles.

And don’t assume that you will get the full pay-out either. You need to have paid National Insurance tax for 35 years, known as an NI qualifying year, otherwise you will only get a proportion of it. For example, if you’ve only paid 20 years that is 20/35ths, so you’d only get £103 a week.

In most circumstances you should be able to accumulate 35 years of NI qualifying years, but some people may not if they take a career break for example.  You can always make voluntary NI contributions every year to qualify, for instance if you retired young.

You can easily check your state pension record by searching Google for ‘check-your-state-pension’ and visiting the government’s website.

What’s more, there are whispers in the finance community that doubt whether the government can afford to continue paying a state pension to everyone for much longer. The country is broke, and the state pension is just a humongous pyramid scheme, which relies on current taxpayers to fund the current crop of pensioners.

There is a possibility that the state pension will be means-tested in the future, so don’t count on it being there for you. Personally, we plan as if it won’t even exist, and if it does it’ll be one hell of a sweet bonus for us!

#7 – Failing To Claim Back More In Tax Relief

Tax relief on pension contributions is one of those rare occasions when the taxman gives you something back. The government effectively pays 20% of your total contribution. For higher rate taxpayers this is 40% and for additional rate taxpayers it’s 45%. This means a £2,000 pension contribution could effectively cost you as little as £1,100.

However, the government only automatically adds the 20% tax relief to your pension, and you must claim back the rest if you’re a higher or additional rate taxpayer. You have to actively claim this money back though via your self-assessment tax return or by contacting HMRC directly. Many people are missing out simply by being ignorant of the tax system.

Not claiming their tax relief is one of the most common retirement mistakes people make and is literally throwing money away. Your tax-relief, once claimed, will either be supplied as a rebate at the end of the year, or as a reduction in your tax liability, or as a change to your tax code.

If you’re one of these unfortunate souls, you can thankfully make backdated claims, but you can only claim back any tax relief for the last four tax years.

#8 – Not Shopping Around When You Retire

So, the big day has arrived, and you can finally tell that boss you hate to stick the job where the sun don’t shine. Congratulations! You’re now retired.

You can normally take 25% of your pension as a tax-free lump sum, and after that there are two main ways to draw a taxable income.

One way is Income Drawdown, or Pension Drawdown, which is a way of taking money out of your pension to live on in retirement. The pension remains invested, and the investor draws an income from it.

The other is to buy an annuity from an insurance company, which provides a secure retirement income for life. If an investor chooses this option, they should shop around as rates can vary significantly.

No sensible person would ever take out car insurance or choose an energy provider without running a price comparison first because you know that the providers of such services will always rip off the complacent. The same is true if you take out an annuity from your existing pension fund provider.

According to a 2019 Which? report, shopping around for an annuity can increase an individual’s retirement income by up to 20%.

As a little sidenote to this point, before taking out an annuity be absolutely clear that it’s the right financial product for you. We here at Money Unshackled are not very fond of annuities because the rates are measly, and when you die all the money is usually lost. Those with guaranteed periods where your beneficiaries can benefit after your death naturally have even worse rates.

With your bog-standard single-life annuity, if you die relatively young having just taken it out you may have wasted hundreds of thousands of pounds, which could have been passed on to your loved ones.

Annuities are usually best for those who need a guaranteed income and cannot cope with the whims of the stock and bond markets. We believe the State Pension should be enough to provide a guaranteed income though for most people and should replace annuities as their base layer, to be topped up with riskier investment-based income.

Which of these blunders have you made and what other tips can you give to retirement savers? Join the conversation in the comments below.

Written by Andy


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5 Myths About Early Retirement That Just Aren’t True | FIRE

The topic we love most is FIRE, or Financial Independence, Retire Early. FIRE involves stashing away as much money as you can during your working years so you can achieve financial independence as early as possible – ideally in your 40s or even 30s. At that point you are free to retire should you choose.

In this context, financial independence means you have enough money coming in from passive sources such as investments to cover your day-to-day living expenses.

On our missions to achieve FIRE – in which we’re both progressing nicely – we want to help as many people as we can to get to financial independence with us. But there are a lot of FIRE myths floating around, which are potentially dangerous. What we don’t want is people never starting or quitting along the way due to a misunderstanding of the process. So, in this post we want to set the record straight and dispel some of the biggest FIRE myths. Let’s check it out…

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Myth #1 – It’s All Or Nothing

Probably the biggest myth doing the rounds is that there’s no point even trying because it’s so difficult to achieve FIRE. The naysayers spreading this falsehood believe that FIRE is an event. They see it as you are either FIRE, or not. But that is totally the wrong way to look at it and they fail to see the benefits of just being on the path!

FIRE is a journey with many destinations and goals along the way. There are many degrees of financial independence.

One of the earliest goals for you might be to start living on less than you earn. That’s an achievement that can turn your whole life around in a day. The next goal might be to pay down all your consumer debt – credit cards, store cards, overdrafts, and so on. The advantages of doing this are obvious. You don’t need to have attained FIRE in full to benefit from these smaller goals.

Say you have a goal of producing £40,000 per year passively from your freedom fund, which is what we call our retirement savings. You might have determined that to achieve this you will need a freedom fund of £1 million. On the journey to £1 million – or whatever your FIRE number is – you will probably start with just a few thousand quid. That doesn’t sound like much, but that small amount means life will no longer push you around like a leaf in the wind.

At that stage the passive income is almost non-existent, but a small freedom fund gives you breathing space from life’s little disasters.

As your freedom fund grows there is a noticeable change in life dynamics. For instance, once your pot hits £30k you might have the confidence to negotiate a higher salary because now you have a trump card – you are able to quit your current job and find another without financial fear. The balance of power has shifted from the employer to the employee.

Someone we knew had an engineering job and later his employer tried to make him do sales as well. His finances gave him the confidence to say no, and his employer backed down with their tail between their legs. This guy had a freedom fund and so was able to dictate terms and pull the strings!

As your freedom fund continues to grow you will be presented with new opportunities to make money that are probably unimaginable right now. Maybe someone you know is starting a business, or is taking on a new property project, and is raising capital. You don’t need to have completed FIRE in its entirety to benefit!

Moreover, if your goal was ultimately to earn freedom but you fancy having a bit of that freedom early, you can very easily take a career break and spend a few grand jet-setting around the world. You can continue working on FIRE when you return – no problem.

Myth #2 – You Will Get Bored / Have No Purpose / Can’t Socialise

We’ve tried to encompass all the main criticisms of early retirement into this one super-myth. They’re all total nonsense. The naysayers are clearly jealous and know they don’t have what it takes to succeed. Because they can’t do it, they want to discourage you from doing it.

Come on man, how will you get bored when you have both time and money? Why could you not find or build a purpose? And not being able to socialise is ridiculous. Having your manager choose all your friends is pathetic.

When you’re free you will be able to do more of the things you love. If you want to spend your days hitting golf balls, then there’s a good chance you’ll make friends with people who also like doing the same.

Generally, people who plan to retire early are goal-oriented and driven. Sometimes, and we’re guilty of this ourselves, the FIRE community has a tendency to promote FIRE as if it’s lying on a beach all day in a hammock. While that would be ace for a few weeks it probably would get boring pretty quickly. But you’d go find something else to do.

Those who are keen to retire early are rather looking forward to starting the next phase of their life – one that has gone unfulfilled for far too long due to being a wage slave.

It doesn’t matter if you don’t even know what it is yet – it will come to you later. I’m betting your purpose is not shovelling crap into a skip for somebody else, but that might be what you currently find yourself doing out of necessity. That’s not a purpose!

Once your free time opens up, you’re likely to focus your life on things that truly make you feel fulfilled. This could be charity work, spending more time with family and friends, traveling the world or learning new skills.

And guess what, FIRE does not mean you have to stop earning money. You’re free to pursue whatever you like. If you want to open a small business, for instance a B&B, that normally wouldn’t have supported your lifestyle, well now you can. Cos now you’re doing it out of love, rather than for money.

Myth #3 – FIRE Relies On Extreme Frugality And High Incomes

I suppose this one depends on what your definition of extreme frugality is. Some people choose to get to FIRE by living on rice and beans, living in a dive, and not owning a car nor many other possessions for that matter, but this is just one way. And not the way we would ever recommend.

If you think you can’t be happy without buying designer clothes, driving a fast car, living in the trendy part of town, and holidaying in the Bahamas, despite earning an average salary, then yeah you probably won’t ever attain FIRE.

But somewhere in between those examples lies the sweet spot. For me, I insist on having a certain level of comfort and lifestyle but it’s not luxurious by any means. I have a car – but it’s an old Ford Focus, not a brand-new Tesla. I want to go on holiday – but it’s likely to be in affordable Spain, not the Maldives. I want to eat out – but I choose Nandos, not a three-star Michelin restaurant.

You get the point. You can still do and have all this stuff without it costing the earth, and still achieve FIRE. It’s simply a case of spending less than you earn and investing the rest.

The more you earn the easier it is – we won’t lie about that. Once you’re living your desired lifestyle, every extra penny earned above this is there to be invested and help you reach FIRE.

Truth be told, we’ve yet to meet an early retiree who achieved FIRE by avoiding Starbucks.

Our approach is simple: Decide on your savings per month or SPMs first, and work hard to achieve that goal. Once you achieve your savings per month, spend the rest of your money however you want to – guilt free. If that means buying lattes or takeaways, go for it.

Myth #4 – The Next Bear Market Will Obliterate Any Hopes Of FIRE

This is another complaint by the naysayers. They argue that the next bear market will devastate investment pots, and that future returns will be lower than what they’ve been historically, such that if you were to continue drawing from your freedom fund it will soon run down to zero.

This argument is inflamed by the current lofty valuations of stock markets, especially the S&P 500, which at time of filming is sitting at all-time highs. The S&P’s Price Earnings ratio currently stands at 35, while its median value over history is under 15. You can easily to see why some people might think we’re due the mother of all crashes, capable of wiping out any chance of living off your investments.

Perhaps counterintuitively, a crash might actually benefit the FIRE community. High share prices only benefit those who already have wealth and are retired. For those accumulating wealth and hoping to FIRE in the future, like we are, we’re being forced to pay over the odds right now to buy into the stock market. We would love a crash, and low share prices would only fuel the FIRE community’s growth!

As for those who have already FIRE’d we don’t think there is too much to worry about from a bear market. For a start there are many studies that have analysed safe withdrawal rates such as the one carried out by William Bengen and then later the Trinity study.

Champions of the FIRE community have also come up with strategies designed to weather a bear market. One such strategy is to have a big pile of cash that can be drawn from when the stock market has tanked. This ensures you are not selling your investments at knockdown prices.

Another strategy or extension to the cash pile strategy is to build a high-yield, dividend portfolio, so even if the market crashes, you don’t need to sell off your investments. High dividend stocks tend to be more stable because they’re in mature, often monopoly like, industries.

And let’s not pretend that once you’ve FIRE’d you won’t be reacting to the market. The idea of FIRE is not to shrink your expenditure if the market tanks, but it remains a tool in your kit – at least until the market recovers.

And that leaves us with perhaps the biggest myth-buster of them all, which is your ability to earn money. When you consider that most people who achieve FIRE are ambitious and driven people who are good at making money it seems highly unlikely that their freedom funds will ever run dry.

Many who “retire early” find themselves continuing to make money following their passions. Take us for example. The day we hit FIRE doesn’t mean our income from Money Unshackled will suddenly come to a grinding halt. Sure, we might post videos less frequently but even as multi-millionaires we can’t see a day where our passion for helping people to make money would stop.

Myth #5 – Society Will Collapse If Everyone Reaches FIRE

This is a hilarious one because it’s never going to happen anyway. Only the truly committed will ever achieve FIRE and most people just aren’t. However, let’s play along and assume it did.

The people peddling this myth are implying that your plans for FIRE are in some way immoral – that you being free is damaging society. They don’t really believe that and secretly they just resent you because you’re doing something they can’t.

They question: who will serve you in the shops? Who will clean the toilets? Who will collect the rubbish bins? Who will cook in the restaurants? Of course, all this is total nonsense. Society would be far superior if everyone wasn’t broke. And remember it takes a long time to get to FIRE, so the country would still have a workforce.

As part of the FIRE community, even if you’re not directly doing it yourself, you will be investing money into companies that are changing the world, inventing new technologies and developing new life-saving drugs.

Plus, while you’re working a 9 to 5, you’re not spending money in society. But when you’re financially free you will be out there living, and the economy will grow because of it.

At the end of the day many people want to stay productive and are happy to work when the conditions are right, and the choice is theirs.

What do the people around you think about FIRE? Join the conversation in the comments below.

Written by Andy


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