Pension planning for every stage of your life – part one

Lauren Morton | 10/01/2019


Most of us are aware that we should be saving for the future, but the amount you can afford to put away and the level of risk you’re prepared to take will usually depend on the life stage you’re at. Here, we look at pension planning for every stage of your life to help you get on track to achieve the retirement you want. You should consider seeking professional financial advice if you’re not sure how much you should be saving and where, or what to do with your pension when you retire.

In your twenties

When you reach your twenties, retirement planning is often the last thing on your mind. After all, you’ve only just stopped being a teenager, so worrying about something that’ll happen in your sixties or seventies is likely to be pretty low on the priority list. However, the sooner you begin saving for the future, the better, as starting early gives compound interest - or the ability for income to generate more income and gains to grow on gains – more time to work. 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.

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. If you’re not sure whether you’re saving enough, our pension calculator can help you work out if you need to top up your contributions, based on the age you’re hoping to stop work and the sort of income you’re looking for in retirement. 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.

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. Find out about pension planning in your fifties and sixties in ‘Pension planning or every stage of your life – part two.’

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.

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