Saving for retirement in your 20s and 30s
In your 20s and 30s you’ve probably got so many priorities competing for your attention that retirement may be the last thing on your mind; it may feel so far away that you can think about it later. But, if you start saving for retirement now (with even a moderate amount), you have one great advantage over those who start later.
Time is on your side
The examples below show just how much difference it could make when you start saving and investing early – the length of time you invest for is the single biggest factor that determines growth opportunity – the longer, the better, although of course there are no guarantees.
In our hypothetical example
- Rory starts investing £100 a month when he is 25
- Tom invests £200 a month from the age of 45
- They have both saved the same £48,000 by age 65 and both reinvest the returns.
Assuming a typical 5% annual return
- Rory’s investment of £48,000 over the longer period (40 yrs) has grown substantially to £153,238
- Whereas Tom’s same investment of £48,000 over a shorter period (20 yrs) has grown to just £82,549
- In short, Rory’s investment value is close to twice the value of Tom’s simply because he began saving so much earlier.
Reasons to start now
Tax relief boost – for every £80 saved, the government provides £20 in tax relief, and you may get more back in your tax return if you pay tax at a higher rate.
Longer retirements – If you’re in your 20s or 30s, you’re likely to spend 20 years in retirement – or even longer.
What you can do now
- Maximise your employer contributions – If your employer offers a workplace pension, then you should consider contributing whatever is required to get the maximum employer contribution.
- Set up a regular savings plan – If you are self-employed or simply want to pay more into your pension, then you can pay in and get tax relief on anything up to the annual limit of £60,000* or to 100% of your earnings if that’s lower.
- Regularly review your payments – As your circumstances change, you can easily increase, stop or restart your contributions any time to suit you.
- Keep pace with salary increases – Any time you get a pay rise, think about increasing your pension contributions by the same percentage.
- Bring your pensions together* – As you’re likely to have a number of jobs, you could easily end up with a dozen or more pensions by the time you retire. Tracking multiple pensions through multiple providers is tricky and time consuming, it might be easier in the long run to bring them together as you go. Bringing your pensions together means you have just one company to deal with for every aspect of your income. Just be sure that if you transfer your pensions to one company you check that you won’t lose any valuable benefits, what charges apply and that you have access to all the income options you need.
*Important information – It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you speak to an authorised financial adviser.
Fidelity
How we can help
Although retirement may seem too far away in the future to worry about when you’re in your 20s and 30s, there’s no better time to start saving towards your retirement years. With time still very much on your side, this ensures you can make a flying start to growing your retirement finances, and by the time you come to retire and stop working, it will directly influence the lifestyle you’ll be able to afford.
To start the ball rolling and to find out more about making a start on saving for retirement, why not arrange to meet us so that we can help you understand your options. A meeting with us is without obligation and at our expense. To get in touch call us on 0808 123 4321.
Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.