Why you should start saving money now so you can enjoy your retirement
It doesn’t matter how old you are reading this right now, you should be saving money or investing towards your retirement. If you plan on a comfortable retirement and especially if you plan on jetting off on holidays and leading a luxurious retirement, then you really do need to plan ahead. The state pension just isn’t going to cut it for you I’m afraid.
The current state pension for 2019/20 is £8,767.20 per year, that’s just £730.60 per month. Could you live comfortably on that?
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I’ve only touched on pensions and retirement in a few blog posts before as I’ve only started panicking about my own retirement since hitting my 30s. I suddenly had the realisation that unless I want to work until I am 70 years old or even older, then I may only have 30 or 35 years left to save a retirement fund that might need to last me anywhere from 20-40 years depending on how long I live.
In my 20s I never thought about saving for my retirement as it seemed ages away. Now it doesn’t seem quite so far, especially as I realise I’m more than half way to my 60s!
10 quick reasons why you should start saving money for retirement ASAP
- Financial independence – you really don’t want to run out of money or be struggling with money in your old age.
- The state pension isn’t enough – it will only cover the basics and you may struggle with money if you only rely on the state pension (currently just £730.60 per month).
- We’ve no idea if the state pension will exist in 30-40 years – the state pension is clearly not enough today and we have no idea if it will even exist or what its rate will be by the time we retire. I’m 34 and another 30-40 years is a long time and there will be many changes in government by the time I retire.
- You’ll save more and get more rewards the younger you start saving – with compound interest on investing, employer contributions and interest on savings, no matter how you save you’ll be able to save more the younger you start saving and earn more rewards
- A tax-free lump sum when you retire – many pension schemes let you take a quarter of your pension savings as a tax-free lump sum upon retirement.
- Your employer might make contributions to your pension – if you earn enough then you’ll be automatically enrolled into a workplace pension if you are employed. Your employer may pay into your pension to top up your own contributions – this is basically free money for you!
- You don’t want to work forever – or maybe you do if you love your job or have your own business, but still, I think it’s nice to have the option to not have to work if you don’t want to once you hit old age and at some point you might have to stop working due to age related health issues.
- You might need more money than you think – well you might be very frugal and think that the state pension or a small amount is enough, you never know just how much costs will rise by the time you reach retirement age. You also don’t know if you’ll get ill and need specialised care or need to move into a home. Carers and homes can be very costly. You can lead a healthy lifestyle to help prevent this, but no one knows what health issues will appear as they get older and you may need funds to support them.
- To treat your family – I don’t know about you, but when I reach retirement I want to be able to treat my kids and grandkids if only to the odd meal out, day out or spot of pocket money. I definitely don’t want to be counting every penny and worrying how I’ll get through the month.
- People are living longer – most people are living longer nowadays with life expectancy in older years higher than it’s ever been. You may live a lot longer than you think!
How much money do I need to save into my pension each month?
I’ve used an online calculator on Pension Bee to see that if I save £200 a month and wanted to retire by the age of 65 then with the full state pension I would have approximately £15,487 to live off each year. That doesn’t seem like much, especially as I am taking lots of travel inspiration from Jules Verne and plan on travelling the world as much as possible when I retire!
To give me almost £22,000 per year which I think would be very comfortable, considering I won’t have a mortgage to pay by then, then I need to up my payments to £400 per month for the next 36 years.
At the moment this is too much for me to save, but hopefully I will be able to up my payments in a few years and definitely once the children are grown up and our household costs reduce.
I’m also self-employed so I have no employer contributions, so if you do then you’ll be able to save much more much quicker than I can.
It depends on how much you want as a pension to what you need to save each month. It's best to use an online calculator as a guide to get a rough estimation of what you need to save or seek proper financial advice.
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But couldn’t you sell your house to fund your retirement?
Of course there’s always those who say but surely you could downsize and sell your house to fund your retirement? Yes, I could and it’s possible we may downsize once we are older, but we already live in a modest 3 bedroom house and our aim for our home is for it to be our children’s retirement, so do consider that.
If you plan on downsizing your home or selling it once older to find your retirement then that’s less inheritance for your children. Personally I’d rather try and save more in the next 30-35 years towards my retirement myself so as I can leave the house as an asset to my children when Ben and I have both died.
Plus you do want to keep a home that’s mortgage free ideally otherwise you’ll have rent payments to consider when you are retired which is not ideal.
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My retirement savings plan
For now I am saving 10-15% of my income into a savings account each month and have done for the past couple of years. I know it’s not enough and not the most ideal way to save for my retirement, but I also know it’s better than nothing and some people I know haven’t even started saving at all.
Once money is more secure in the next couple of years and the children are a bit older then I hope to save more and look into actual pension schemes to see if they are right for me. I’m also considering continuing saving into a personal savings with an aim of investing in property as this will be a great way for the money to grow as the property value increases, but also to make an income or take a pension from the rental income.
However you decide to save for your retirement I think it’s important to simply get started and think about it as soon as you can. You don’t want to be worrying about money in your old age as you probably have had to the rest of your life.
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