Think of retirement is a gap year that can last 30 years – and which needs to be funded if you are going to do all the things you want to do during it.
If you are aged 18-25, you are part of the new ‘generation A’. You are only just discovering the world of work, and getting a regular income, retirement is 40 years away and the last thing on your mind.
Why you need to start saving now
If you are a millennial, or a ‘generation A’, you have already faced some financial challenges. If you went to college or university, you are probably saddled with a substantial student debt. Even if you didn’t, most of your working life has been overshadowed by recession and austerity, and uncertainty about whether the work is going to continue.
Now, when you are finally ready to enjoy having a little money in your pocket, you are faced with rising property prices. You need to save a huge deposit if you are going to get on the housing ladder at all.
So it’s understandable if you don’t have saving for a pension as your biggest priority right now – after all pensions are for old people, your grandparents age or older.
But there’s another way to think about retirement. Imagine having a gap year that lasts 30 years or even more. If you start thinking of a pension as something you need to pay for 30 years of fun, adventure and discovery, it sounds a lot more appealing.
If you intend to make the most of your later life, and treat it like a gap year you never need to come home from, you need to start taking the right steps now.
What will retirement be like in 40 years time?
Of course, it’s hard to make too many predictions about the future. The old idea of men retiring at 65 and women at 60 is already outdated.
Extending your working life to age 75, which has been predicted as the state pension age of the future is not so horrifying a prospect if you can use technology to live and work anywhere that suits you. But if you want to actually retire, with no worries about money while you make the most of your endless gap year you need to start planning.
Yes, there will be a state pension (probably). But as anyone who has reached retirement age will tell you, it is hardly enough to live on, let alone enjoy life. You’ll still want to run a car and enjoy holidays and evenings out. Whatever the future holds, and whenever you finally do start your permanent gap year, you need to start saving now.
What do you need to do?
According to recent studies of the pensions market, younger workers who want to build up sufficient funds to generate 2/3rds of their final income won’t be able to afford to retire before their mid-70s.
The solution is basically simple: start stashing away as much as you can, and let compound interest do the work of growing your pension pot. Start doing it as soon as possible, and make sure you choose the best schemes to make the most of your money.
Take advantage of your workplace pension – your employer will contribute into it as well as you. You will probably be making several career moves over the next 40 years, but your pension pot can move with you.
Think about a Personal Pension Plan. Setting up your own plan will help you stay in control of your saving, whatever happens in your career. You can run it in parallel with any workplace pension.
Look at the new Lifetime ISA. It could help you save the deposit for a first home as well as build a tax-free pension pot.
Perhaps the best thing to do is to get professional help with pension planning without delay. Understanding the opportunities and the pitfalls, and an understanding of liabilities such as lifetime allowance and pension taxation can be as important as working out the best way to maximise returns.
If you’re unsure about your pension provision, or if you are making the most of your tax allowances, our professional retirement team will be happy to help.
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Levels and bases of reliefs from taxation are subject to change.