Sam Robinson, principal financial adviser at Almond Financial, explained how Britons can start planning for a comfortable retirement.
Saving early means people will see more growth in the long term thanks to compounding interest (the interest people earn on interest) which can make even small regular savings add up significantly. For example, if someone starts saving £100 per month now at six percent, in 46 years they’ll have saved around £271,809.
With a recent report finding that the average UK worker faces a retirement shortfall of over £115,000 if they rely on minimum pension contributions, it’s now more important than ever that people start thinking of retirement planning early.
It’s important to understand that starting to save early will make affording the retirement lifestyle people want a lot easier, without affecting their ability to live comfortably now, Mr Robinson explained.
A 2022 report by Loughborough University and the Pensions and Lifetime Savings Association (PLSA), mapped out how much the average retiree would need in annual retirement income to live a minimum, moderate and comfortable life after retiring.
The minimum amount is £12,800 and allows for all essentials to be covered with some discretionary spending left over. The moderate amount is £23,300 or £28,300 for those in London. People would have more financial stability and security with more discretionary spending.
A comfortable lifestyle would need (£37,300 each year (£40,900 in London). A more comfortable standard of living offers more flexibility and some luxuries.
Mr Robinson explained contributing to a pension pot is a great option due to the tax advantages such as the Lifetime ISA.
The Lifetime ISA is good for both retirement planning and buying one’s first home.
This scheme is only available from the age of 18 up to 40, whereby people can contribute up to £4000 each year until they’re 50 and the government will add a 25 percent bonus to savings.
Saving small regular amounts early in life towards a private pension, LISA, or investment ISA, will give people the opportunity for higher compounding interest on their savings, meaning they get more from their money.
Mr Robinson said: “As salaries grow, you should put more money into your pension pot to accelerate savings.
“If you progress into another job at a different company, consolidating your pension pots will give you the opportunity to save and make money in one move.
“Prioritizing higher contributions as early in life as possible can give you a higher return on your savings, helping to bridge the gap and maximize your retirement benefits.”
Take advantage of the longstanding benefits of early retirement planning
He continued: “If you start saving £100 per month now, at six percent in 46 years you’ll have £271,809. That’s only £25 per week, giving you financial breathing room to still afford the lifestyle you desire.
However, if you leave it late and give yourself only 26 years to save just over £12,000 extra in £283,950 you’d have to put aside £400 per month – £100 per week. A significant blow to your current disposable income and lifestyle affordability.”
Mr Robinson gave four tips on maximising one’s retirement benefits”
- “Ensure your current finances are in order before deciding to invest
- Increase pension contributions
- Consider setting up a stocks and shares ISA
- Invest using a General Investment Account (GIA).”
Britons are warned that with investing comes risk. They might not get back what they put in.
For more information, people can speak to a financial advisor.