The idea that time flies seems like an urban myth when you are young. However, you get to a certain age, and it can feel like you went to bed in January and woke up in May. With what seems like no warning, the need to have money set aside for retirement seems urgent.
When you are younger, saving for retirement can feel like a low priority for tight finances. It is likely you are saving for the deposit for a house, or you want to have children soon. As The Telegraph reported, many workers admit to feeling like they are doing little to prepare for retirement.
The benefits of workplace pensions
The move by the government to create a workplace pension scheme seemed a slow burner. However, people have started to see these schemes as something of a blessing. According to government statistics (Government Pension Regulation), the number of auto-enrolments recently passed 10 million. Better news, few people chose to opt out of the scheme. It is true that money we never see we never seem to miss.
However, there is a worry with the recent increase in contributions that people will begin to notice this payment on their wage slip. It is essential that people continue to see the workplace pension as the foundation on which to build future retirement savings.
Why you should consider retirement savings
There will come a time when you want to, or need to, stop working. This could be a choice you make, though it is more likely just going to happen. The state pension is only enough to keep you out of poverty. If you want to live with some comfort, you will need your retirement savings. The ageing population means that future generations will not receive the same benefits of the past. Therefore, young people need to start now.
The earlier you start, the more manageable the savings to your retirement will be. It is best to work in proportions of your salary, rather than in a fixed amount. This will mean that the amount you save will go up with your earnings and therefore you will never experience a shock in take-home pay. You could also increase the percentage later in life when you are more likely to have disposable income, although this can be costly as there is less time to contribute into your pension account.
Remember to keep it in proportion
The good news is that most of us over-estimate the money we will need to live comfortably in retirement. We calculate what we need based on our current expenses, which includes mortgage payments and money for travel, as well as the expenses created by children.
In April 2019, ‘Which?’ magazine published the results of research and found a retiree could live on around £2200 a month in comfort, including some European holidays, hobbies and eating out. Therefore, comfortable in retirement equates to about £26000 a year for some people.
It is a good idea to seek advice on the schemes that could help you with your retirement savings. Although most people over-estimate the amount they will need in retirement, it is never too early to get your savings plan established.
The content in this article was correct on 19th May 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.