Baby Step 4 – Invest in Retirement
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A lot of people find the prospect of looking at pensions and retirement investing pretty daunting. It’s something people (including myself) put off looking into because they are worried it’ll be confusing but putting money towards your retirement is arguably one of the most important things you can do to ensure wealth when you are older, and the sooner you start the better off you’ll be.
Baby Step 4 (BS4) is to start contributing 15% of your gross salary to retirement
So, first things first let’s work out what 15% of our gross salary is.
Gross is what you make in total, Net is what is left after deductions like tax and NI are taken. For example, a person earns wages of £1,000, and £200 in deductions are taken from their paycheck. Their gross income is £1,000 and their net income is £800.
15% of £1000 is £150. That may seem like a large chunk of money to be giving up each month but remember when you get to BS4 you no longer have any debt to be paying towards each month and you’ll have solid budgeting skills that will allow you to work this in.
‘What on earth is a 401K and a ROTH IRA?’
This is one of those American products that you hear about on the Dave Ramsey Podcast and it leaves a lot of us Brits stumped, luckily they do have UK equivalents
A 401k is the equivalent of our auto-enrolment pension
A Roth IRA’s closest UK product would seem to be the LISA or Lifetime ISA
Based on the numbers I hear on the podcast and from what I see on American blogs their interest rates and company matches do seem to be a bit better than what we get here in the UK.
Where to invest your 15%
This is something that is completely individual to you and your circumstances BUT it my opinion, if you have no retirement savings or plan at all right this moment then the best place to put it would to be in the pension provided by your workplace or, if self-employed, into a LISA – Something invested somewhere is better than nothing after all.
There are a lot of other places you could save/invest your 15% and that is something I’m hoping to be able to go into in more detail for you with the help of some money industry friends (who know their stuff!) over the coming months.
Run the calculations
The easiest way to work out where you are aiming for in regards to retirement is to run the sums! There are lots of handy tools out there, try it with a few different set of numbers to see what makes you feel most comfortable.