I’m too young to worry about retirement
When you’re in your 20s and 30s, your retirement is probably the very last thing on your mind. And that’s perfectly natural with careers to develop, houses to rent or buy, partners to find, keep and marry, and maybe even children to have. There are many calls on your time and resources that trump thinking about your pension plan.
That’s why the government has mandated auto-enrolment pensions in almost every business in the country, where you have to contribute into a pension and this is deducted at source by your employer, and where they also make a contribution. The reason compulsory pensions were introduced is because there’s always something more pressing to spend your money on now, rather than investing for your old age, so as a nation we weren’t long-term saving. And that’s bad for a couple of reasons. Firstly, the state pension is designed to give you just enough money to keep you fed and sheltered and no more.
Try living on £200 per week sometime (including having to buy clothes, food, bills, rent/mortgage, travel, gifts, etc.). It’s much harder than it sounds and isn’t how you’d want to spend your golden years. Secondly, we’re living much longer. Expect life to go on into your nineties now, but with that good news comes increased costs, so you’ll need to save more.
Tony Clark, Senior Propositions Manager at St. James’s Place, says: “Although retirement will look very different compared to previous generations, it is still likely to last for several decades. Making savvy investment decisions now gives you more choices in later life”.
Is your pension really sorted?
So, if you think you’re sorted just because you have a pension through your company (and also expect to receive the state pension), well think again. Having a pension is one thing. Having the pension plan you need is entirely another and as your retirement savings are the most important bit of investing you’ll ever do in your life, you need to get it right. This is where a financial adviser is worth their weight in gold. They know how much you need to invest to achieve the lifestyle you have in mind at retirement and then help you save for it.
For instance, if you plan to retire at 65, join the tennis club and go on a couple of cruises a year, a financial adviser will help you add up the likely cost of this kind of lifestyle and work out how big a retirement pot you’ll need to build. Genuinely, by the time you start thinking about a pension yourself, it’s likely to be too late to do too much about the outcome – and size – of your pension. Your retirement is likely to last 25 or more years and that’s a long time by any standards, so you need to save for as long as possible and try to grow that cash by as much as possible.
Time is the friend of investing. Time gives your money the chance to grow over the long term, ironing out the ups and downs of stock markets and should turn the cash you’ve invested into significantly more than if you were saving it in an interest-bearing deposit account.
Getting retirement advice
The point I’m trying to make here is that speaking to a financial adviser early in your working life is that they can orientate you into how to achieve your goals, both short term and long. Getting an understanding of what you need for the retirement you think you’ll want will help you to contribute into your work pension and set up any additional contributions if required.
Equally, a financial adviser will help with your short-term objectives, like saving for a deposit on a house or apartment, planning for a wedding or children. They will understand how to blend your objectives, whilst ensuring there’s still some money around for a bit of fun! Even if you only use a financial adviser to get your financial strategy right and then manage your investments yourself, you’ll be far better equipped for life than the wild guessing games that people play when trying to organise their own investment strategies.
“Making more informed choices is where having an adviser makes a huge difference. Whether it is to provide a sense check on how your plans are doing, or even to help avoid scams, it can be a real advantage having an expert in your corner”, says Tony Clark, Senior Propositions Manager at St. James’s Place.
It’s never too early or too late to save for retirement
Finally – and this is speaking from experience – there is a point in life when that little amber warning light comes on in your mind, round about the early 50s, where you start to think about retirement. A bit like the fuel or electricity warning light in a car, it reminds you that you really do need to find a petrol station or charger. And like that situation, you have a lot less choice as to where you go to fill up.
If you’re thinking about your pension in your 50s, then it’s not too late to improve the outcomes you might have at retirement, but it’s a hell of a lot harder as you’re running out of time.
So, here’s some advice from the Ghost of Christmas Future: start your pension as early as possible, as you’ve got a longer retirement to save up for. A financial adviser will cajole you into doing the right thing and you’ll thank them for it later.
This article was sponsored by St. James’s Place.
Photo by Yusuke Ide on Canva
