Posted on: 28th Nov 2018
It’s obvious to many individuals that saving foris essential. However, many young individuals fail to understand that saving early on is key for a comfortable lifestyle when it’s time to retire. Here, we explain why saving for your in your 20’s is something that every young individual should consider.
Saving for your pension in your 20’s: why now?
The term “pennies make pounds” comes to mind when we talk about why you should save from an early age. By starting with small, frequent payments, your contributions can become more affordable. What’s more, they become easier to manage and gives your pot more time to grow. After a while of saving, you will no longer notice the contribution being paid or deducted from your salary. Instead, you will see that your pension is growing, assuring you a sustainable retirement.
Be aware that legislation is open to change. It is more than likely that the legislation will change while you are contributing to a pension. We highly recommend you take advantage of the current benefits of pension contributions before any potential adverse legislative changes make it more difficult for your pension to grow.
What happens if you delay your savings?
We understand that many young individuals make saving for a house a top priority. However, delaying your pension contributions for 5-10 years can have a massive impact on the value of your pension when you retire. Let’s say a 25-year old aimed to retire at age 70 saves only £50 into their pension. A mere 5-year delay will lead to a reduction of over £30,000 in the final value of the pension n pot when they reach retirement. A 10-year delay would double that. The further you delay, the less you will have. You can learn more about the cost of delay by visiting Unbiased.
How much extra should you save?
Any type of saving will only be successful if it is affordable. It is a good idea to monitor your finances over a normal month and look at your usual level of income and expenditure. This will enable you to see how affordable your pension contributions can be.
Thanks to auto-enrolment, you can contribute to your pension directly from your salary. This means you will not need to think of it as another bill coming out of your account. What’s more, your employer contributes too! Any contributions paid into a pension is also eligible for 25 per cent tax relief. This means, if you pay in £20, the government will pay in £20. This will increase your pot by £100.
When to consider financial advice
If you are self-employed or looking to set up a pension outside of your employment, you may want to consider an IFA. They can help you with finding the most appropriate pension provider and the funds to invest in line with your risk attitude. What’s more, they can help keep your pension managed on a daily basis.
What are your best pension options when saving early?
Paying into a pension that your employer also pays into can increase your pension without additional costs. However, saving into a pension is not the only way to save for your retirement. ISAs offer a tax-efficient way of saving. Though you may not receive tax relief on your contributions, you don’t pay income or capital gains tax on any growth or withdrawals. Some ISAs even offer increased flexibility in terms of when your funds can be accessed.
As mentioned, having an IFA by your side could be one of the best decisions you make with your pension as it can help keep things well-managed on a daily basis. Haven IFA can help you make the right decisions with your investments and financial future. If you would like to know more about the ways in which you can prepare yourself for a comfortable retirement, get in touch to speak to one of our advisers.