As a nation we may be divided on a whole range of issues, from Brexit to the best moment to add milk to a cup of tea. But there is one thing we can all agree on: everyone needs to save for retirement.
However, the priorities we attach to retirement saving are likely to change depending on age. Here we look at saving and investment priorities at five different life stages.
As you take your first steps into the world of work in your twenties, retirement is unlikely to be high on your list of priorities. However, if you are offered the chance to join your company’s pension scheme you should probably take it. Your employer will pay in money on your behalf. If you don’t join you may well regret it later in life as that money will be lost. If you would prefer a more accessible savings vehicle than a pension you can also save up to £20,000 pa in a tax-efficient ISA.
By your thirties, if you haven’t already done so, you want to start thinking about your life goals and taking your retirement saving more seriously. It’s a good time to make the most of compound returns. Compounding involves investment returns themselves generating future returns. It means that, if you have time on your side, even relatively small amounts you invest can build into much larger sums. The earlier you start to save the more powerful the effect of compounding will be.
Come your forties you may be hitting peak earnings and probably enjoying a better quality of life than ever before.But there is no room for complacency. Even if you feel your finances are in shape it is a good idea to review them. That way you can make sure that you are clear about how you want to live in the future, whether your investments are on target to meet your goals and that you are using all the allowances available to you.
Next come your fifties. Under current rules you could access your pension at 55 and in theory retire but remember that pension legislation could change in the future so you need to keep a close eye on the rules.
Many people use their fifties to continue earning and give their retirement savings a final boost. It is also time to start focussing on the level of income you will need in retirement. Once you have a realistic income target you can establish whether your pension pot will provide the income you need – and take action accordingly. Make good use of your financial planner during this decade – and check they aren’t preparing to retire before you!
Finally, once you reach your sixties retirement will probably be in sight, but even at this stage it is not too late to give your pension a final boost. ‘Carry forward’ could be very useful as it allows you to make use of any unused allowance from the previous three tax years.
As you get closer to retirement and begin to focus on turning your pension into a retirement income you may want to take less risk with your investments. However, if you intend to keep much of your pension invested after you retire, continuing to take investment risk for longer will give it more of a chance to grow in your later years. You could be hit hard by any falls in the market, but if you are taking a long-term approach hopefully you will be able to ride out any losses in value.
How we can help
Whatever age group you fall into, the most important thing is not to put your head in the sand. With the right advice pension saving need not be complicated. But you want to get it right and Brewin Dolphin’s financial planners can give you the specific guidance you need.
The value of investments and any income from them can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.