Is it too late to start saving for retirement?

When should I start saving for retirement?

We all want a secure future where we don’t have to worry about money so that we can enjoy the freedom and choice to do what we want to do when we retire. There’s no doubt that building up a retirement pot as early as possible and being engaged with the process from an early age will give you the best chance of a secure financial future. However, if you’re a little late to the party with putting money aside for your future, rest assured that it’s never too late to start saving for retirement.

More people are now more aware of the importance of saving money for retirement. The workplace automatic enrolment has certainly played a key role in this and has indeed helped many younger people in employment put money aside for their retirement. However, many people still aren’t aware how much they really need to save in order to retire comfortably.

The benefit of starting early

Saving for retirement from an early age will allow you to make full use of compound interest. This means that your money has more potential to grow in value if it is saved for longer. It also increases the probability of your investments weathering market fluctuations successfully.

Make use of generous tax reliefs

There’s no cap to how much you can save into your pension each year, but there is a limit to how much qualifies for tax relief. Each person has annual tax relief allowances which amount to being able to save the equivalent of 100% of your earnings to your pension each year or up to the annual allowance which is a maximum of £40,000 (2022/23). It’s a tax-efficient way to save money – and the tax relief you get from the government means your retirement savings may grow quicker than you think.

How much is enough to save for retirement?

Many people may be shocked to learn how little income their savings will actually provide for them in the future.

The Retirement Living Standards, launched by the Pensions and Lifetime Savings Association (PLSA) in the UK, has launched a framework[1] to help people visualise what kind of lifestyle they could have in the future. It is pitched at three levels: minimum, moderate and comfortable, and is designed as a practical and meaningful starting point for anyone who is unsure about how much to save into their pension.

In the UK, the PLSA suggests that a single person will need to save £10,900 a year to achieve the minimum living standard, £20,800 a year for moderate, and £33,600 a year for comfortable. For couples it is £16,700, £30,600 and £49,7001.[2]

Look towards your retirement goals

As you reach your 40s and 50s, many people start thinking about what their retirement might look like, what lifestyle they want and what outgoings you might have. This is where a clear financial plan is important so you can clearly see how much you need to set aside to reach the retirement lifestyle you want.

A financial plan can also give you confidence and something measurable to work towards. It helps alleviate any money worries and allows you to enjoy your life right now, instead of worrying about how much you need for the future.

Keep a track of your State pension

The full State pension, which is available to anyone who has made at least 35 qualifying years of National Insurance contributions is a valuable addition to your own personal retirement fund.  It’s important to keep a track of what State pension is available to you, how many years you have contributed in total, and identify any gaps where you may not have been in work. You can view this via the Gov.uk website or HMRC App.

If you identify any gaps, it allows you to make a top up payment within 6 years of the original missing year.

If you are unsure about whether you have enough in your retirement fund to enjoy the lifestyle you want or would like some help putting together a financial plan to give you more confidence and security, contact one of our Wealth Management team who will be happy to help.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

[1] Retirement Living Standards, Pensions and Lifetime Savings Association, 2021

[2] Retirement Living Standards, Pensions and Lifetime Savings Association, 2021