Staying in control of the cash flow and figuring out plans to increase your financial status while still having enough money to run day-to-day expenses can be a challenge for many. It is particularly true for self-employed contractors who need to optimize their finances, identify ways to cut costs, and still manage to save money for their retirement. Regardless of whether you are an experienced or a novice trader, these money-saving tips will help you secure your future.
How much will I have in my Pension Fund when I retire?
How big will the size of the pension fund be – there is no straightforward answer to this question. That is because it differs for each person. It depends mainly on your particular circumstances and how much you’ve been able to put aside for your pension fund.
Additionally, as a contractor, other factors determine how big your pension fund might be:
- The amount of money you’ve been saving up for your retirement
- The number of years you’ve been saving for
- The amount of money that’s been used up for covering provider fees
- And how well your pension investments performed (if you have any!)
Saving for retirement
Here are the top 10 tips that will help contractors save money for their retirement:
1. Start Paying into a Pension scheme
You must start paying into a pension fund as early as possible, especially if you are a self-employed contractor. As a contractor, you are solely responsible for making regular contributions to your pension fund, choosing the right provider, and making sure you have enough money to run your business.
Since you are a contractor, it is possible that you might not have a regular income. You might find it tough to commit to a specific amount every month. Another reason you should start saving early is to increase your contributions over time and allow time for investment growth. The state pension is slated to increase by £228.80 per year for the tax year 2021/2022. And the lifetime allowance is also set to remain at £1,073,100 till 2026. Additionally, you can think of self-invested personal pension contributions of up to 100% of your income (of up to £40,000) into the SIPP scheme.
In case you are paying yourself a more significant percentage of dividends, you should know that you are not going to get pension tax relief on it. If you really do want to increase your pension fund contributions, you should think of increasing your salary or making a larger employer contribution. Here is good read on Can I Make Pension Contributions Through My Limited Company?
2. Maintain at least the Same Savings
It would help if you aimed at contributing at least a fixed amount to the pension fund. Yes, you’ll indeed be able to achieve your retirement goals sooner if you contributed more money. However, you can think of putting aside more money if your business picks up pace.
3. Expand Pension Saving Strategies
It is not advisable to put all your eggs in one basket, so you should look at various money-making strategies. If one method doesn’t work, there are chances that others might. You can think of opening an automatic deposit so that you don’t have to transfer money into a retirement account manually. You can try investing in shares, trading in the stock market, putting more money into your business, or even buying property.
4. Build an Exit Strategy for your Business
For some contractors, their business is their retirement plan. If it’s the case with you as well, then you can start treating your business as an asset. Build it over time, put in your profits into the business, and start taking out a lower salary. It would help if you had an exit strategy in place so that you can simply sell your business for profit when the right time comes.
5. Pay Attention to Insurance
Insurance can come in handy when you want to save money, and it can easily be overlooked. Certain perks of being employed full-time such as uninterrupted savings contribution, are not available when you are a self-employed contractor. So, you must pay attention to insurance policies that will help you in the long run.
6. Build a Pension with the Right Provider
When you are setting up a pension fund, it is best if you look around to get the right provider to serve your best interests. Since you might not have a steady income as a contractor, it might be tough for you to find a provider- but it’s not entirely impossible.
Rather than a scheme that allows for a minimum payment, it would help if you thought of a plan that lets you increase or decrease your contributions depending on your income.
7. Put Aside for Taxes
As a contractor, you should be ready to file your taxes all by yourself – it might get overwhelming at times having to do everything by yourself. It is better to start putting aside money towards tax and not to end up scrambling for time or cash at the last minute. When you budget correctly and plan, you also don’t have to dip into your savings.
8. Renegotiate your Contractor Rates
Renegotiating your contractor rates is a sure-shot way of increasing your income and improving your contributions towards the retirement fund. While it might be intimidating to ask your clients for more money, you can rest assured that they’ll attribute it to the increasing living costs and business expenses.
9. Keep an Eye on your Pension Pot
You should keep an eye on the fund and monitor it regularly. Only when you know if your savings are shaping up well can you decide whether to increase or decrease your contributions.
10. Hire the Experts
If you’d rather focus your time and energy on running your business and leave the accounting to the accountants, you can think of hiring the experts. Accounting and law can get very daunting, so it sometimes makes more sense to talk to the experts to get ideas on maximizing tax savings, increasing your contributions, and boosting your pension pot.
The sooner you think about saving for your retirement, the better your future is going to be. No matter your retirement goals, the money you save now will help you have all the things you’ll need for your future. Start saving early, diversify your strategies, pick the best provider, and keep monitoring your pension fund to have a chance at a secure future. If you want to Plan Your Retirement with Our Unique Strategies please call us on 020 3500 2646.