Starting a pension at twenty
Retirement planning is still important in your 20s. The sooner you begin saving for the future, the better, as starting early gives compound growth - or the ability for income to generate more income and gains to grow on gains.
If you’re employed, your employer may automatically enrol you into a company pension scheme into which both you and they contribute. If you work for yourself and don’t have access to a company scheme, consider paying into a personal pension. You can read about the various options available in our blog ‘Pensions for the self-employed.’
Make sure you check where your pension savings are being invested. As you’re young, you might decide you’re comfortable taking more risk with your investments at this point, as you’ll have more time to make up any losses on the way.
How to prepare for retirement in your thirties
Once you reach your thirties, you may find you have a bit extra to put into your pension. For example, you might have paid off your student debts, or have moved up the career ladder so you’re earning a bit more. However, you might now have other financial commitments which you’ll need to consider – perhaps you’re starting a family, or you’re thinking of buying your first home. Even if you do have other costs to cover, it’s vital not to neglect retirement saving. Now’s also a good time to review how much risk you’re taking with your retirement savings. As in your twenties, as you’ve still got several decades to go before you retire, you may be happy adopting a riskier approach in the hope of potentially higher long-term rewards.
Planning for retirement in your forties
By your forties ideally you will have been saving into a pension for some time, but if you haven’t, remember that it’s never too late to start.
You’ll usually have been working for a couple of decades by now, so it’s important to give your finances a thorough review and see whether it might now be possible to contribute a bit more to your pension. If, for example, you’ve had a pay rise or a bonus, you might decide to increase your contributions, or make a lump sum payment into your pension.
It’s also a good idea to see how much you’re likely to get from the State Pension when you retire. This will depend on the National Insurance contributions you’ve made. You’ll need at least 10 ‘qualifying years’ on your National Insurance record to get any State Pension and 35 qualifying years to get the full State Pension, which in the 2018-19 tax year is £164.35 a week. You’ll get a qualifying year for each year you spend working if you’re earning over £162 a week from one employer, or for each year you’re self-employed and paying National Insurance contributions. You can find out how much you might be entitled to by obtaining a State Pension forecast.
What's the best way to save for retirement in your fifties?
Your fifties are a good time to work out exactly how much you have saved and to track down any pensions you might have forgotten about over the years, perhaps because you’ve joined several different company schemes.
If you’ve got lots of different pensions and find it hard to keep an eye on all of them, you might want to think about consolidating your retirement savings. This can make it much simpler to manage your money, and to monitor where your pension savings are invested.
Always check whether there are any penalties for transferring and if you’ll have to give up any valuable benefits too and get professional advice if you’re not sure if consolidating is right for you.
As you approach retirement, think about how you feel now about risk. If you’ve built up a significant pension pot over the years, you can move some or all of your pension savings into lower risk investments such as bonds and cash, so that your savings aren’t hit by stock market volatility just before you start to draw your pension. However, if you plan to keep your pension invested and draw a regular income from it, a process known as income drawdown, then you may wish to continue to invest in more medium to high risk assets as your pension will continue to be invested over the longer term.
Many company schemes automatically move your funds into lower risk investments as you near retirement, through a process known as ‘lifestyling’. If you are unsure about whether or not your plan does this, check with your employer or pension provider.
If you belong to a final salary or defined benefit pension, you won’t need to make any investment decisions, as these will be made by the company you work for.
Planning for retirement at sixty
Ideally, you’ll be on the home straight to retirement once you’re in your sixties, and at this stage you should know when you’ll retire and at what age you can start drawing benefits from your pensions.
At this stage, write down a list of all your outgoings and incomings so that you can be certain you’ll be able to afford retirement. Remember to factor in how much you’ll get from the state pension too. If you're wondering how much your pension is worth try a Pension Calculator to help you find out roughly what you’re likely to need for either a modest or comfortable retirement.
If your income from your pensions isn’t going to be enough to cover all your outgoings, now’s the time to think about ways you might be able to supplement what’s coming in, perhaps by continuing to work part-time, or by letting out a spare room.
You should also start thinking about how you’ll access your pension savings once you retire. If you’re aged 55 or over, you can find out more about your options at retirement from the Government’s Pension Wise service. If you want advice tailored to your individual circumstances, you’ll need to seek professional pension planning advice.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment, please contact one of our advisers. Past performance is not a guide to future performance. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.