Saving for retirement – slow and steady works

saving for retirement

Savings

Julie Hutchison

29th May 2015 at 1:03pm

Saving for retirement…

is a marathon not a sprint and it’s never too early to start!

Are your pension savings looking a bit out of shape?

It’s time for a savings health check. If your pension savings aren’t looking too healthy it’s important to take action straightaway. Give yourself a better chance of having enough savings to fund the lifestyle you want later on.

But it’s not a 100 metre sprint. This is more like a marathon, a long term plan which needs regular commitment rather than a one-off burst of saving.

Commit yourself

If you want to enjoy good financial health in retirement, just like maintaining good physical health, you’ll need to make a few lifestyle adjustments. If you have money left over at the end of the month you should try to save it.

Once you’ve paid your main bills and covered the essentials, it’s a good idea to think about topping up your pension – the more you save, the better.

Get yourself a sponsor

You’ll even get extra top-ups from the taxman. For every £80 you pay in to your pension, HMRC pays in £20 and if you’re a higher rate taxpayer your overall tax bill could be reduced even more. Think of all the top-ups you could receive from the taxman over the years.

Play the long game

Start early and give yourself decades to save – it’s not just about saving 10 years before you retire.

The key is to pace yourself. Get into a good savings habit where you save regularly for the long run.

The best part about saving early is that that your pension will benefit from ‘compounding’ -. This means any growth on your savings then starts to generate growth itself. Here’s how it works:

  • If you save £1,000 into a piggybank every year for five years, which means no interest is received, after five years you’ll have £5,000.
  • And if you put the same £1,000 every year for five years into an ISA, with growth of 5% and charge of 1% a year this could turn into £5,533*.
  • However if you put the same £1,000 every year for five years into a pension, with growth of 5% and a charge of 1% a year this could turn into £6,916**
  • The bigger potential for growth here is because £1,000 becomes £1,250 each year, due to the tax relief boost, even before any investment growth kicks in.

Remember the money you save in the earliest years has the most potential to grow. Do start getting into a monthly savings habit now to get on track for the retirement you want.

For information on saving for retirement visit the Money Advice Service or check out our guides on saving for retirement.

*This assumes a 1% AMC. With inflation of 2.5% this would be £5,194.

**This assumes a 1% AMC. With inflation of 2.5% this would be £6,493.

The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment. Its value can go up or down and may be worth less than you paid in. Laws and tax rules may change.

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