“A third of retirement savers plan to rely on ISAs for the bulk of their retirement income rather than Pension Plans” – this is the surprising conclusion of recent research from MetLife.
That both worries and scares me.
An ISA is a great savings account but boy do you need some discipline if the funds are still going to be there at retirement. The pension plan is the opposite. No withdrawal flexibility until age 55 but as a result the funds will still be there when you need them.
Now I am not against starting off with an ISA as long as you are disciplined enough not to access the funds when you need a new kitchen or the car fails its MOT. Saving in an ISA when you are a basic rate tax payer and feeding the lump sum into a pension plan when you become a higher rate tax payer is tax planning at its best.
Most important of all is to get into the habit of saving first and spending what’s left. Spending first and saving what’s left has never worked and never will. Secondly, make sure you qualify for the maximum pension contribution from your employer even if it means putting more in yourself than is really comfortable.
That age old advice of not having all your eggs in one basket remains sound. My recent presentation to a networking group at the Basepoint Business Centre was all about planning for retirement by developing alternative streams of passive income.
So by all means use ISAs as well as Pension Plans but not as an alternative. And if you are using ISAs, only use Cash ISAs for your holiday or emergency funds. For medium/long-term savings use a Stocks and Shares ISA. My ISA is with Hargreaves Lansdown. There is loads of help and guidance on their website. There is absolutely no way that cash ISAs will produce a satisfactory retirement fund.
Finally you really do need to make sure those old pension plans from earlier employments are working well for you. Take a look at my previous blog – 3 reasons why you should sort out those old pension plans
All of this can be done online these days but if you would like some help or guidance just text me on 07770 575122 or complete the enquiry box.
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