Saving for retirement ought to be one of your top financial priorities. The earlier you can make a start, the better. This Moneyfarm blog is designed to help with that, and we’d like to start by offering you our top tips to help you maximise your retirement savings, whatever your age.
- Concentrate on making a start at the earliest opportunity.
- Choose and contribute to workplace pensions, SIPPs, and other personal pensions.
- Match or better the contributions your employer makes.
- Take full advantage of your 50s retirement savings opportunities.
- Automate your contributions
- Cut down on spending
- Set financial goals
- Use as much of your disposable income as you can to boost pension contributions.
- Don’t over-contribute to National Insurance
| #️⃣ What age should you start saving for retirement? | As soon as possible |
| 🤔 Is there any point in saving for retirement? | Yes, to have adequate money through retirement |
| ⛱️ Is retiring at 55 too early? | No |
| 🫰 How much do I need for retirement? | It will depend on the lifestyle you want in retirement. |
How to save for retirement
Saving for retirement is never easy – especially when you’re young, and retirement seems so far away. However, it’s the best time to start saving. The earlier you begin, the more time compound interest will have to work its magic.
The compound interest applied to your pension – private, SIPP, or workplace pension– means that every year, the interest your pension savings makes earns you even more interest – yes, we are talking interest on interest. So the greater the number of years, the more your pension pot will grow.
How to maximise savings on a budget
At the time of writing this blog, the conditions that impact saving for retirement are the toughest they have been in over 40 years. Here are a few suggestions that can help you to maximise your pension savings, not only in present circumstances but at any time.
Create a meaningful budget
Without working towards a budget, it’s very easy to spend all of your disposable income without even thinking. Unless you have a disciplined approach, saving for investment doesn’t even get put on the back burner, so make sure to include it in your budget.
Concentrate on making small changes to your existing budget
Trying to make sweeping changes to a budget often stops you from even trying. Instead of making significant changes, keep them small and within reason. If you haven’t already got one, open a retirement savings account and funnel any money you manage to save into it. It’s also a good idea to conduct this type of review every few months. A budgeting app comes in handy.
Shop around for the best deals
It will help if you always look for the best deals when shopping. Still, this section refers to things like changing your mortgage provider, the insurance companies you use, your gas and electricity suppliers, etc.
Automate your savings
If you are not used to saving, it’s easy to overlook it. One way of tackling that is through automation. Financial institutions have made transfer automation easy, and there are also various money-saving apps around. In addition to automating the saving process, financial apps also offer other things you might find useful, such as keeping track of your expenditure and calculating the amount of money you can save.
How much should I save for retirement?
The answer to the question of how much you should save for retirement is dictated by the sort of lifestyle you want to have after you’ve hung up your working boots for good. The Which magazine suggests that a couple will need £27,000 per annum for a comfortable retirement and £42,000 for a more luxurious lifestyle.
Whatever the answer, you need to start thinking about saving for retirement as early as possible. You’ll find Moneyfarm’s retirement planning blog contains some beneficial information.
How much should you have in savings at each age?
The fact of the matter is that the average Brit is way behind where they should be when it comes to setting money aside in a retirement savings plan or pension, as illustrated in the Moneyfarm ”average savings by age” blog.
- The under-25s only have average savings of £2,481 on average.
- The under 25- to 34-year-olds only have savings of £3.544 on average.
- The under 35- to 44-year-olds only have savings of £5,995 on average.
- The under 45- to 54-year-olds only have savings of £11,013 on average.
- Those above the age of 55 only have savings of £20,028 on average.
These average retirement savings by age are way below where they should be. By the age of 30, you should have saved £51,434, £124,911 by the time you’re 40, £198,390 by the time you’re 50, and £270,00 by the time you reach 60.
To ensure you are on the way to getting anywhere near these amounts of retirement money, make sure your employer has auto-enrolled you in a workplace pension scheme. It’s the best way to save for retirement because, with this sort of pension scheme, you and your employer contribute.
How to save in your 30s
Begin by asking yourself, how much do I need for retirement? Once you’ve picked yourself up off the floor, you’ll probably realise you will have to aim for higher pension savings than you initially thought, and you’ll need to start a private or personal pension in addition to your state pension and workplace pension. Again, Moneyfarm’s pension guide will point you in the right direction.
To help you save for retirement, get rid of as much debt as possible. The next thing to do is to come up with a short vs long financial needs strategy to cover putting enough money aside for emergency contingencies. A financial strategy will help you decide the long-term investment vehicles for your retirement.
Your 30s is also a good time to start thinking about the pension age you’d like to work towards. Now would be a good time to ask yourself how to retire at 55.
How to save in your 40s
Going by what we said earlier, ideally, by the time you’re in your 40s, your pension savings should be between £124,911 and £198,390. Unfortunately, the reality is that you’re probably smack bang in the middle of the savings gap. Using one of the many retirement income calculators you can find online will reveal where you’re at.
The good news is that you’ll be earning significantly more than you were in your 30s. So, review your budget and consider investing more money into your preferred investment vehicle. However, bear in mind that the pension income in your retirement will still be taxable, whereas funds in stocks and shares won’t be.
People aged between 45 to 54 form the most significant slice of those in self-employment here in the UK. According to the ONS, they accounted for 4.5% of the working population back in 2016, and that figure will undoubtedly be significantly higher in the future. Being self-employed presents many challenges, one of the most significant being saving for retirement.
Because any workplace pensions you might have had are no longer receiving subscriptions, you should consider opening a private pension or a SIPP. You can check out your options in the self-employed pension blog on the Moneyfarm website.
How to save in your 50s
When you’re in your 50s, reviewing how your pension savings account vehicles and any other investments you might have are performing is a good idea. There is a helpful blog on the topic of 50s retirement savings on the Moneyfarm website. A tidying-up exercise can help you get back on target for funding the retirement living standards you’re shooting for.
Making sure your pensions are performing as you’d hoped is a crucial element of any tidy-up exercise, and you can refer to Moneyfarm’s “pension transfer” blog for some tips.
If you’re hoping to retire with £1 million and you’ve structured your retirement savings accordingly, you should also keep an eye on your lifetime savings allowance. If your contributions take you over the top, the taxman will come calling.
How to maximise your retirement savings
It’s never too late to start thinking about your savings and investments – even in your 60s. It’s a time when many receive a lump sum through inheritance, so you need to know about the best savings account for over 60s. Investing it wisely can add to income in retirement and allow you a generous pension drawdown.
Closing thoughts
Calculate the retirement savings you’re to accumulate and check it regularly. The quality of your retirement depends on it. Maximise your pension and other investment contributions to optimise tax relief, and don’t forget about financial products like stocks and shares ISAs, which are tax-free.
FAQ
What are some reasons people don’t save more for retirement?
There are several reasons why people don’t plan for retirement. Too many expenses and a lack of funds can make saving for retirement challenging and not a priority. Some people also believe they still have time to save for retirement, which is only sometimes true. Others think it’s too late, especially when nearing retirement, which is also not always true. Having some savings can deter people from starting their retirement savings, but high inflation can make savings suddenly insufficient. Finally, people are stretched thin and need more money to save for retirement because they have prioritised other investment accounts for their tax and withdrawal benefits.
What’s the best way to save for retirement in the UK?
There are a variety of ways to save for retirement in the UK. You can save into a pension scheme, which can be a private pension or workplace pension. You can also opt for an investment account, open an individual stocks and shares ISA account, or go for a general investment account. High-interest rate savings accounts are also an option; however, they might not generate higher interest rates than investment accounts.
Why is it important to save for retirement?
Putting money away for retirement today will guarantee you enough funds to maintain a satisfactory lifestyle when you eventually retire or lower your hours.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
