Investing For Retirement - Best Ways to Invest
Investing For Retirement - Best Ways to Invest
There are many ways to save for retirement. However, the best ways to save for retirement in the UK are as follows:
Employers Pension Schemes
There are two types of employers pension scheme.
The Defined Benefit (DB) Scheme is a more generous one as the pension you get is based on the length of service and your final salary. These can pay up to two-thirds of your final salary. You also eliminate the risk of investing in the stock market. Most companies have now closed their DB schemes because they are very expensive for employers to maintain.
The other type of employer pension scheme is the Defined Contribution (DC) Scheme. You contribute a percentage of your salary into a pension fund which invests your money in the stock market, bond market, etc. Most companies will match your contributions up to 5-7% of your gross salary. There is an element of risk with the DC scheme as the size of your pension pot, and eventually the annuity you will get, depends on the performance of your pension fund.
No matter which pension scheme you are in, you get tax relief on your pension contributions at the basic rate or higher rate depending on the tax bracket you are in.
Personal Pension - Additonal Voluntary Contributions (AVCs).
Your contributions to your AVC will build up a separate pension pot which you will use to buy an annuity when you reach retirement age. This will give you a third source of retirement income, assuming you will receive an occupational pension and a state pension. You also get tax relief on your contributions at your personal income tax rate.
Individual Savings Account (ISA)
ISAs are a tax efficient way of saving. The incomes you receive from your ISA investments are exempt from income tax and any capital appreciation are not subject to capital gains tax. You can invest in blue chip stocks that pay regular dividends, even when business is not faring as well as usual.
There are two types of ISAs - Cash ISAs and Stock and Shares ISAs. For the tax year 2010/11, the maximum you are allowed to invest in a Cash ISA is 5,100 and the limit for a Stocks and Shares ISA is 10,200. The overall combined ISA allowance is 10,200.
National Savings & Investments - Indexed-linked Savings Certificates.
If you are looking for a safe home for your money, then National Savings Index-linked Savings Certificates can be an option. They are backed by HM Treasury and therefore your savings are guaranteed by the British Government.
The return on your savings is linked to the retail price index plus 1% compound rate of interest if you let your savings run for your opted period of 3 or 5 years. The rate of return ensures that your savings at least keep pace with inflation plus a little extra.
Interests are free from UK Income Tax and capital appreciation is not subject to Capital Gains Tax.
Invest in real estate - Buy to Let.
You may be required to have a reasonably substantial deposit for the property you are buying and the balance of the purchase price will be financed by a mortgage from your bank or building society. However, the rental income is liable to UK Income Tax and any capital appreciation is subject to Capital Gains Tax.
It is important that you have a diversified and balanced portfolio of investments. You will have to consider your own circumstances and the level of risks you are prepared to take.
"Time" is a vital ingredient to save for retirement. Start saving for your retirement early to maximize your pension fund.
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