Best tips when saving for retirement

There is no right or wrong time to begin your retirement planning journey. Whether you are still finding your feet in the working world, or you have one foot in retirement, you need to be proactive in making your money work as best as possible for you within the timeframe that you have. Here we look to highlight some of the best tips when saving for retirement, including the  best time to get started, how much you should be putting aside and what you can do even if you’ve left it later in life. 

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When do you start saving for retirement? 

When deciding on when you should start saving for retirement, no matter the age you start, developing a monthly savings plan is an effective habit to cultivate. Setting aside a designated amount of your income automatically into a retirement pot will quickly become routine and may look something like the following: 

• The bulk going towards mandatory expenses (food, bills etc). 
• Smaller portion going towards retirement savings. 
• Try to set aside funds for living life and enjoying yourself too. 
• We also strongly recommend having an emergency fund in place to cover unexpected event or expenses. The size of this fund depends on your financial lifestyle, but a good rule of thumb is at least 3 months of your monthly outgoings.

Clearly, the earlier you start to save the easier it will be to accumulate wealth. With the benefit of compounding, you can afford to put away smaller amounts in the early years for longer rather than having to find larger amounts the later in life that you leave it. This is because compounding means that you can make returns or earn interest on interest or growth you have already received. 

When it comes to talking about wealth accumulation, the obvious elephant in the room is debt. This is the single biggest hurdle towards any savings for retirement and should be the first thing you target in your strategy. If you have numerous liabilities, it may be sensible to explore paying off those with higher interest rates first and work down. Only then can you properly focus on accumulating your wealth. 

How much should I save for retirement? 

A good rule of thumb might be to set aside 10%-15% of your income and try maintain discipline with this. As an example, assuming a 6% annual investment return a 25-year-old putting away £262 per month will have over £500,000 by 65. Notably, a quarter of this is made up from contributions with the remaining £375,000 from investment growth, further showcasing the beauty of compounding over time. 

Please note, the return on investment in the example above is purely for illustrative purposes. 

(source:https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-s…).  

Is saving for retirement worth it? 

Retirement saving is a critical aspect that is often overlooked or delayed, but in 2023, we find ourselves in a world where this topic is more pertinent than ever. We are in a time of high life expectancy, high inflation rates with a cost-of-living crisis. Without being doom-and-gloom, how amongst all this do we stay on top of future planning when the present is taking so much precedent? 

It's vital, then, that you ask yourself ‘what am I trying to achieve?’. Without addressing this at the outset, you run the risk of aiming for a goal but lacking direction. For some, the answer might be to retire at 55 and move abroad with their spouse; for others it might be to live a comfortable retirement alone. Everyone’s situation is different. 

Best ways to save for retirement in your 30s 

You are still relatively early on in your career journey and it’s often a time for lots of change, whether personally or professionally. It’s natural to be focused on immediate financial goals, but this is a time where compounding can be at its most powerful. 

You may find yourself checking your pension plan and you’re met with the reassuring reminder ‘You’re due to retire in 25 years!’. You should, however, see this as a call to action. This longevity means that it’s worth exploring higher risk assets (i.e. equities) to allow the potential of higher returns. You can take comfort in the fact that you can ride out any stock market volatility over these years. Most employers in the UK offer you a pension plan, and most will match a portion of your contributions. You will receive tax relief from the government, further bolstering the amount: 

You are simultaneously contributing to your retirement pot whilst reducing your income tax bill – what’s not to love. 

A less trodden path for people in their 30s is financial protection (insurance). However, life policies, for example, can be a great way to protect your family should you/your spouse pass away. Due to your age, you will likely benefit from lower premiums and can give peace of mind that your loved ones are protected should the worst happen. 

Best way to save for retirement in your 40s 

In your 40s, you’ve likely established your career, increased your earnings, and are saving some way towards your future. However, competing goals like mortgage payments, childcare or retirement savings are all jostling for your attention.

As you can see from the above, increased earnings provides greater potential to supercharge retirement savings. Take advantage of this by looking at utilising your £20,000 ISA annual allowance for example; this tax-free pot is a great tool for wealth growth. 

You may also have jumped around various jobs in your career by now and have small pension pots dotted around. People often forget about these until they are staring retirement in the face. One option might be to explore ‘consolidating’ these pensions into one fund. A survey from Profile Pensions recently highlighted that nearly a quarter of UK adults under 55 have lost track of old pensions worth an est. £37bn in total. Consolidating will make it easier to manage and could potentially reduce the overall fees you are paying. 

Source: https://www.cipp.org.uk/resources/news/unclaimed-pension-funds.html 

Best way to save for retirement in your 50s 

Conversely, whilst we have discussed that time is your ally in your 30s and 40s, the reverse can ring true in your 50s. You will likely have one eye on retirement and ultimately you will have to begin considering accessing your funds, otherwise known as crystallizing your retirement funds and a keyway to do this is called 'drawdown’, when you use your pension fund to provide an appropriate income. It might be prudent, then, to explore de-risking your assets so that you are less exposed to market volatility in this period. Many pension funds offer ‘lifestyle’ options which mean they automatically de-risk your investments as you approach retirement. You should check your existing structures to see how they align with your goals as lifestyling may not always be the best approach.

What if I haven’t even started? 

You may be thinking ‘I’m too late’, but there is no need to panic. You will just need to take a more disciplined approach to these retirement tips by making sacrifices and saving larger portions of income to give ‘future you’ a financially healthier retirement. Try utilising your pension and ISA allowances and, on top of your state pension, you may still reach a comfortable retirement.  

We’re currently offering everyone with £100,000 in pensions, savings or investments a free retirement planning review, worth £500. Why not get in touch and see how we can help map out your financial future to give you the retirement you want.

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Note: This article is for general information only, does not constitute individual advice and should not be used to inform financial decisions. A pension is a form of investment. Investment returns are not guaranteed, and you may get back less than originally invested; past performance is not a guide to future returns. Your home may be repossessed if you do not keep up repayments on your mortgage. The FCA does not regulate tax advice, estate, tax or trust planning.