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When should I start saving for my pension?

When you think of your retirement, you dream of the freedom to put yourself first after years of juggling your career, family life and paying the bills.

Unfortunately, you might be putting this dream at risk by not prioritising your savings early enough.   

Planning for the future

We’re living in geopolitically unpredictable times and, against this backdrop, the future of the pensions landscape is uncertain. It doesn’t help that the state pension goalposts are constantly changing, which makes it hard for even the most organised to plan for the future.  

Big pension changes were meant to offer Brits more flexibility and choice over their pension, but now many are finding it tougher to confidently plan their finances for retirement.  

Brits are constantly being told they aren’t saving enough for retirement and that the system is creaking under the strain, yet the complexity of the industry means it can be difficult for savers to understand what’s best.

When should I start saving for retirement?

Saving for your retirement doesn’t need to be intimidating; the earlier you start, the less impact it will have on your day-to-day living. You can also make your money work harder for you thanks to, arguably, the most powerful investing phenomenon: compounding. This is where the return on your money earns its own returns, and so on.  

Ideally, you’ll begin saving as soon as you start working – although it can be hard saving for the future on a low income, especially in a world that’s binging on instant gratification.

But this is when you’re most financially independent. In your thirties, new priorities will start competing for your resources. You’ll still need to save as much as you can – something is better than nothing.  

How much will I need in retirement?

Most will rely on the state pension in retirement, but at just £164.35 a week, it won’t get you very far. Before you know how much you need to save, think about how much you’re going to need.

The good news is that you’re probably going to overestimate this number – remember, the kids will (hopefully) be financially independent, you’ll have paid off your mortgage, and won’t have to fork out for the sweaty commute any more.  

If you want a comfortable retirement with a couple of holidays in Europe every 12 months, you’ll need around £26,000 a year, according to consumer group Which?.

To build up this savings pot, a couple in their 20s will need to put away £131 a month – that’s not too daunting. Leave it to your 30s and this monthly outgoing will creep up to a still-manageable £198.

Push it back any more and the costs start to stack up; a couple in their 40s will have to earmark £338 a month, whereas a couple in their 50s will have to part with £633.

It’s clear that organising your financial goals early and sticking to your game plan can reduce the risk associated with saving for retirement.  

Saving for retirement in your 50s

Whilst it’s easy to remember that you’re never too young to start saving for your retirement – it’s important to remember it’s never too late, either.  

Once you’re in your fifties, retirement is around the corner and you’re day-dreaming of what to do with your free time – maybe you’ll travel, start painting, or bake with the grandchildren.  

You might have been the perfect saver over your career, and have built up a decent pot that you’re confident will see you comfortably through retirement. Maybe your other priorities took over.

Whatever your financial situation, chances are you’d like to have a bit more in the bank just in case.

Make the most of your company pension

There’s no point in trying to plan for your savings if you have no idea what you’ve already got. Take the time to find old company pensions – it requires a bit of leg work, but it’s worth it.  

Think about putting all your investments in one place to make your money easier to manage.

It’s important to make the most of your company while you can. Defined contribution pension schemes – where both you and your employer contributes to your savings – are known for their generous tax benefits.

You’re receive tax relief on your pension contributions in line with how much tax you pay. If you’re a basic rate payer you’ll pay just £8,000 for a £10,000 pension contribution, and a higher rate payer will have to part with just £6,000.

You’ll also be able to withdraw 25% of your pension tax-free from the age of 55 – after that you’ll pay tax in line with your tax bracket.

You can use Moneyfarm’s Pension Calculator to help you work out how much you need to be saving a month to get the income you want in retirement, or start one of Moneyfarm’s regular investment plans.

Making sure you plan for retirement in the best way for you and your family can be difficult. If you need any help, talk to an independent financial adviser and be sure to read our pension guide.

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