Pensions Saving Levels
How much should you save?
Most people say they hope to retire on two thirds of what their salary is at retirement.
Consider realistically how much money you would need in retirement. Your mortgage might be paid off but you’d probably be able to do less DIY as you get older. Then there’s domestic help and, even later on, nursing care. (Feeling depressed? cheer up daytime TV might have improved by then).
The point that is constantly stressed is that it’s never too late to start saving – see it’s never too late to start a pension.
How much are you allowed to save?
Cost of delaying your pension
We all think we’ll never get old. “Die young stay pretty” as the song went. But it may help you to remember your O Levels/ GCSEs. The chances are that the same amount of time ahead is going to see you well on your way to retirement.
If you leave things till then it will be that much more expensive to get a reasonable retirement income.
Take a pair of twins, Jack and Jill. They save the same amount monthly but Jack started saving at 20. Jill left it till she was 30.
As a result she will probably only get half of Jack’s eventual retirement pension. To catch up she’ll have to start saving much more than Jack.
Research by investment specialists Flemings showed that a 25 year old starting a pension and investing £100 a month until 65 would eventually have a fund big enough to finance a pension of £25,000 a year.
However if s/he waited until the age of 30 to start saving, at the same rate, their pension would be worth just £15,400 a year.
Perhaps these are bad examples because if you’re reading this you may be thirty something and feel it’s too late. But you’d be wrong – as you’ll see in it’s never too late to start a pension.
Don’t forget that thirtysomething is a much better place to start than fortysomething and so on.
In other words START AS SOON AS YOU CAN.
We all put it off. But the longer you wait the more it will cost you to get the same pension. It’s never too late so do it now.
What you need to save to achieve a pension income equivalent to half your salary
The cost of waiting a year
This example from Norwich Union shows the cost to your eventual pension fund if you wait a year to start your pension.
|Age now||Pension fund at 65||Age||Pension fund at 65||Difference|
(Assuming gross savings at £100/month and a growth rate of 7% pa)