👵🏼Why You Must Start Thinking About Your Retirement Now, Not in 20 Years’ Time

We all know that saving for retirement is a must. We know that our savings have gotta outlive us not the other way round. But beyond that it all seems a bit confusing and frankly, for the worry of another decade! Unless you’re 50-plus, saving for a pension probably isn’t top of your agenda. Or should it be? 

Once you’ve climbed onto that property ladder cast your attention to a personal pension. Until then (nearly) every penny should go straight to that deposit. It’s worthwhile to push yourself as much as you can because the bigger your deposit (in % terms) the lower your mortgage rates will be.

See, if you’re only putting up 5% equity your bank will need to provide the remaining 95%. This is loads riskier for them than if they were providing a lower 80-85% equity. Every percentage point on your mortgage rate will make a huge difference. Read here how credit cards can help you get a mortgage and how to make the most use out of them!

Don’t underestimate that. Especially with interest rates at the level they’re at (cough, cough 4%!). Plus, do you really wanna be renting all your life? My thoughts exact! Filling others’ coffers when you could be paying towards your very own crib is a downright nasty prospect.

When it comes to investing for a pension, here’s one thing you should never do: opt out of your company pension. 

Opt in!

With National Insurance going up and other tax hikes including inflation which is the deadliest and sneakiest of all (as well as a possible reduction in the threshold at which we must pay back our student loans!), you may be tempted to opt out of your company pensions in a desperate attempt to save yourself a few quid each week.

But I beg you to reconsider. 

This will turn out to be a very costly and short-sighted mistake, one that will save you a few hundred pounds today but what will potentially cost you tens of thousands later down the line.

Company pensions are when you pay a portion of your salary each year toward your pension and your employer will contribute a % toward it. The percent that they contribute will vary from company to company.

But it’s FREE money from your employer. You will not get this money back if, later down the line you want to opt in, so do yourselves a favour and opt in as soon as you can. Your 70-year old self will thank you.

How does it work?

In most automatic enrolment (AE) schemes, you’ll make contributions based on your total salary between £6,240 and £50,270 each year before tax.

Once you earn above £50,270 your employer is no longer required to make contributions at which point you can still choose to pay a % of your salary into your pension but your employer won’t be adding anything on their end.

And it’s at this point where saving into a Sipp will be beneficial since the government will add 20% to your investment. So say you invest £1,000 into a Sipp, the government will add £200 bringing your investment to £1,200.

If you’re worried about rising taxes, then choosing to put some of your salary into your pension is an option since it will lower your tax bill whilst enabling you to invest for your future. Your income tax will be lowered and your pension pot will be getting bigger each day. It’s a no-brainer.

This is what’s known as ‘salary sacrifice’ and those on the high tax brackets will typically be the ones who will be putting more of their salary into their pensions. I mean who wants all that money to go to taxes. No thank you. You want to be able to keep as much of your money as you possibly can. So when you lot are high-flying bankers/lawyers/doctors/entrepreneurs ect you better remember this handy-dandy tax loophole. Thank me later.

Save now; splash later

There is a general feeling that waiting ‘till you’re 70 to do all the things you wanted to do when you were younger is not how it should be. After all, the retirement age keeps on rising and state pension won’t give you much so it’s all down to you (and your employer).

It’s so much easier to scrimp and scrape when you’re young than when you’re old. When you’re young, you can make do with much less (welcome to my Minimalist Lifestyle) but when you get older you really don’t want to be thinking twice about whether you can afford that wine or whether your purse can handle yet another trip to the salon’s.

You’ll want to be out there cruising the world, dining at all those swanky places, treating your grandkids and more. You do not want to be counting the pennies at age 80. That’s frankly depressing.

Enjoy the journey

While you’re living the frugal life (welcome aboard!) be sure to treat yourself once in a while and do the things you’ve always wanted to do. Don’t wait until you’re 80+ to tour the West Coast. Read here why if you can’t spend now you’ll never be able to and why that’s a bigger problem that you think.

But the more that you invest for your retirement when you’re still young (we’re talking 20s and 30s here!), the more money you’ll have when you’re old and grey. It’s that simple.

Compounding (growth on top of growth) will mean that your money has the chance to grow and multiply (what we all want) and every £ invested now will be worth much much more down the line and will hopefully be able to give you the life you want. 

Don’t outlive your pension

We’re all living longer, well into our 90s (I hope!) and retirement ain’t cheap. You’re not working so there’s no monthly income rolling in from your job. That income will all be coming from your pension savings.

Retirement can seen like a dauting prospect but I hope I’ve shown you that there are ways to make it work. It all starts from adopting good money moves and resisting the urge to splurge. The earlier you start the better off you’ll be. And if you find yourself meeting your financial goals sooner than you thought, there’s always the chance that you can retire earlier. 

Here are some tips to help you save more: 

Avoid lifestyle inflation: Just because you earn more does not mean that you have to spend more! The trick is to keep your spending relatively constant despite rising salaries and all those juicy bonuses.

See if you earn more, you’ll spend more and the cost of your overall lifestyle and habits will rise. You now have higher standards and what you thought was a treat or a luxury are now necessities. So think twice before falling down that rabbit-hole.

Forget about the Joneses. Seriously. Way too many people spend money they don’t have to impress people they don’t like. Instead, focus on impressing yourself. The Joneses aren’t thinking about you and they’re certainly not the ones who are paying your bills!

Set yourself a budget and be sure stick to it. It’s so much easier to save more when you actually have a plan. Knowing how much you spend will allow you to see where you can cut down to your expenditure and where you might want to allocate that excess cash.

Trim those takeouts: ordering takeaways should be a treat. A once-in-a-while-kinda-thing not an everyday-kinda-thing. Not to mention these foodstuffs are packed with all sorts of unhealthy stuff. Instead, cook your own meals. You’ll find yourself feeling happier for it, with extra £££’s to invest. Now what could be tastier?

Subscriptions gotta go: We live in subscription land. Literally everything has become a subscription. So if you’re living with your partner make sure you’re on a shared subscription or set up a family plan. This will save you some cash. But every month check what you’re subscribed to and ask yourself: is it still worth my time? Is it still worth my money? If the answer’s no, you’ve got some work to do. 

“Look after the pennies and the pounds will look after themselves”

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.