When to start saving money for retirement is the question advisors get most asked. The sooner you start planning and saving for retirement income, the better, but is it that simple?
Time is the most critical factor here, as the longer you invest, the longer your savings have to earn compound interest and grow capital. A young professional has the advantage of time to grow their retirement portfolio, unlike a middle-aged professional who will need to save more to get the same pension/retirement income results.
How much difference does time make in retirement planning and savings?
A 25 yr old investing £100 a month for 40 years till retirement age of 65, will accumulate around £260 050 in their pension pot.
A 35 yr old would have to invest double that at £200 a month for 30 years to achieve the same capital at retirement age.
A 45 yr old would have to save five times more at £500 a month for 20 years to reach the same retirement nest egg.
(Based on earning an average of 6% p.a. with a 2% annual increase; the above is just for illustration purposes and should not be taken as fact)
As you can see from the example above, time does make a difference when planning for your retirement income. Invested money will need time for compound interest to work its magic and earn interest.
But unfortunately, life happens, and it is not always easy to start a financial plan when you are younger. Younger generations are battling to become financially independent because of the rising cost of living and need help. A financial advisor can advise on the best retirement options that work for you to grow your pension pot.
So what options are left to generate enough income before it’s time to retire?
- Increase monthly pension contributions – Work or company pensions form a significant part of retirement income. Opt for the maximum contributions allowed, so it is deducted before your net salary is paid. In many cases, your employer matches your contributions, so the more you contribute, the more they do. It is a free investment into your pension.
- When you are more established later in life and have the financial means, contribute larger instalments to a private pension plan.
- Use bonuses and annual increases to supplement your pension pot savings. A few lump sum investments could significantly boost your income when you retire.
- Consider working a few more years before retiring to boost your savings. Compound interest does its best magic in the last few years of the savings life of a pension.
- Don’t forget about your state pension. This could help supplement your retirement income. Remember to include this in your pension planning.
Start saving from an early age. Putting regular small amounts of money aside for retirement when you are younger is always better than increasing premiums later in life to make up for the shortfall in your retirement income. Chat with your advisor to give you the best retirement and pension solutions to suit your individual financial circumstances.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your deVere advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.