When should you start thinking about retirement?
There’s a lot of noise out there around this question and much of it is based on narrow assumptions of lifestyles.
£12,800, £23,300 and £37,300 per year are the figures you’ll most commonly see as what’s required for a minimum, moderate and comfortable retirement, respectfully, but these all assume you have no rent or mortgage to pay in retirement, whereas the Resolution Foundation has said a third of the population will be in rented accommodation for their entire lives.
You will also find lots of charts that show you how much to save in your 20s, 30s, 40s and 50s, ranging from between 5% and 20% depending on the blog post or article, and again these sometimes assume your earnings will grow in a linear way and sometimes don’t take the gender pay gap into account.
Last, articles about when to start thinking about your actual retirement plan (two years before? Five years before?) may not be up to speed on the rise of partial retirement and rising life expectancy.
Here’s the guidance we think is worth taking on board and cuts through the noise:
Don’t feel stressed or guilty about it, there’s enough to worry about.
Do play around with pensions calculators (like the one we mentioned last week) but again, don’t get too bogged down.
Do look up your retirement age and what the state pension is forecast to be (but remember the retirement age and amount change).
Linked to that, check how many years you paid national insurance contributions that qualify you for receiving the full state pension, but don’t worry about bumping this up until you’re approaching retirement.
If you have some money you’ve allocated to save for your retirement, do actually do this sooner rather than later because compounding is a thing. You may have to save more to get less if you start saving later.
Wait, explain that last point? So saving £100 a month for 40 years at a rate of 5% could make around £130,739 after fees with the £48,000 you’ve saved. £100 a month for 20 years is obviously going to be less because you’ve saved half the amount, but even if you saved £200 a month, so still £48,000, you’d have more like £76,747 just because it’s had half the time to compound.
Do make your pension pots work harder for you by having a look at the level of risk you’re taking.
Do remember the pensions system isn’t an absolute - it was designed and it can be changed to be better and fairer. And we’re always up to tackling action of the week questions as to how.