When you’re in your twenties or thirties, retirement can seem like a lifetime away – and it often is. The average age for retirement in the UK currently is 66 which, if you’re in your twenties or thirties, is more than double your life up until this point.
It’s for this reason that many younger adults struggle to plan ahead for their pensions and retirement. After all, it’s much easier to be disciplined in saving for something more immediate – like a new car, or buying your first home – than it is for something thirty to forty years away.
It can also be difficult to set plans for saving for retirement if you’re still in the early stages of your working life. You may think that saving more into a pension fund than your automatic contributions is pointless until you’ve found your ‘forever’ job, but this simply isn’t true.
People in general are living longer, which means that there’s more time to reap the rewards of your retirement planning and retire in the way you want, not in a way you’re stuck with.
This is why we’ve put together a list of six things you need to know about retirement planning in your 20s…
1. The early bird catches the worm
The simple fact is, the earlier you start saving or investing your cash for retirement (even if it’s not an ideal amount yet), the more returns you will get later on. It’s always better to start earlier in your life than it is to commit to putting away more later on (also because you can’t predict what your future circumstances may be).
For example, if you were to start investing £100 every month from the age of 26, making 4% each year, by the average retirement age of 66 your pot would have grown to just over £120,000.
However, if you were to save £200 each month from the age of 46, with the same investment growth of 4%, your pot would be just under £80,000. The amount that you have invested is virtually the same by the time your reach retirement, but the first example gives you more compound interest. Start early and finish stronger!
2. Take advantage of tax relief
Savings for pensions in the UK are awarded certain tax relief. For every £80 you save, the government provides £20 in tax relief for pension savings, and this may increase during your tax return. It’s worth taking advantage of these schemes so you can effectively save more.
If you’re self-employed, or just saving extra on your own (as opposed to saving through your workplace pension), you can get tax relief on up to £40,000 per year of your retirement savings as well.
3. Maximise your contributions
If you’re employed by someone else who offers a workplace pension, maximise your employer contributions by contributing as much as you can yourself, which your employer will match to a certain amount.
As well as this, always keep up to date with your contributions. If your salary changes or you suddenly find yourself with more disposable income, consider increasing your savings so you can be rest assured you’re doing everything you can to keep future-you comfortable.
4. Maintaining multiple pensions
By the time you reach retirement age, you’ll most likely have multiple pensions. According to research, millennials are likely to have up to 12 jobs throughout their lifetimes, and usually these will come with pension schemes. With this comes the opportunity for multiple pensions in various places. By combining these, you maximise your chances of better returns, and it will make your life much easier when it comes to keeping track of them.
5. Consider investing or saving smarter
Investing your money, particularly for pensions, is often done because of their long-term nature. The longer you invest your savings, the more likely they are to have bigger returns when it comes to living out retirement. However, investing can be volatile by nature, so make sure you’re working with an adviser to ensure you’re working towards your particular goals and interests.
6. Get advice from the experts
The idea of saving and planning for retirement during your twenties can be overwhelming, and it can be so easy to put off thinking about it until you feel more “ready”, but the truth is that there are plenty of resources and experts out there ready to help you achieve your goals, both immediate and long term.
Getting expert financial advice from an independent adviser can help to see the bigger picture of your finances and retirement planning, as well as getting tailored suggestions to your personal circumstances to best optimise your savings.
At Greenfields, we use our specialist cash flow forecast software to project where your current money habits are taking you, and use this to put plans in place to get you to the future you’re dreaming of. This, coupled with our expert investment advice, could see your retirement dreams realised, and maybe even ahead of schedule.
If you want to find out how you can best prepare for the future and put your mind at ease, give us a call or send us an email today to book your FREE initial meeting with one of our experts.
Phone: 01258 857101