Balancing the ambition of youth with the realities of later life.

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The UK’s graduation season has just come to a close and more than 750,000 postgraduates have entered the labour market for the first time.

After completing their exams some will be tramping through unspoilt wildernesses to blow off steam while others will be sunning themselves on the world’s beaches as they forget the stress of studying. A few will have already dived headlong into their careers.

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What’s for sure is that very few of these graduates and all of the other young apprentices and school leavers that have set out to find work in the UK this year will have put much thought into pension planning.

Unrealistic financial ideas for retirement

We know this because independent research that we commissioned highlights just how ambitious young adults are when it comes to the annual income they expect to enjoy in retirement.

Results from the surveyed 16 to 24 year olds found they hoped to have an annual income of £64,000 after retiring at the age of 63. To achieve this they’d need to save £800 a month and build up a pension pot of £1.9m, but it turns out that three fifths of those questioned aren’t actually saving anything into a pension.

I don’t want to knock anyone’s financial ambitions for the future, but if young adults are to hit their targets for later life it’s very important to set realistic goals and start planning towards them as early as possible.

Challenges to meet and solutions to succeed

For young adults setting out on their working lives there are a lot of financial hurdles to overcome. The cost of studying leaves many with hefty personal debts and the Institute for Fiscal Studies believes the average student will leave university owing over £44,000.

House prices continue to rise making it difficult to save up the money needed for a mortgage deposit and for many there’ll also be the cost of raising a young family to deal with.

Continuing the thrifty approach that many students learn at university will help young people overcome these financial obstacles. Shopping around has almost become a way of life for anyone buying financial products and there’s a growing army of people using voucher codes to save money on everything from laptops to linguini. These savings are significant and adopting this financially savvy strategy is something that’ll serve pension savers well for their entire life.   

But there are also changes taking place to make saving easier and to focus the mind at an early stage in people’s careers on the sort of retirement income they could realistically generate.

Online financial modelling tools make it simple to see how monthly savings will add up over the years and explain how they could be used to generate an income in later life - More sophisticated digital planning services - - make it easier to manage pension savings than ever before.   

Auto-enrolment legislation has made sure the conversation about pension planning starts as soon as many young adults get into the workplace and there are now mandatory pension contribution levels for employers to meet.

All of this should give young adults a better grasp of how their financial plans might pan out and will get them thinking early about how best to save for the future.   

Balancing act

As young adults settle into the stirrups of life part of the challenge is tempering their ideas so they work effectively in the real world and deliver the sorts of results they’re hoping for.  

A more thoughtful and thrifty approach will bear fruit when it comes to achieving financial independence in retirement and by having a realistic outlook and making plans early, young savers will make much better progress towards achievable goals.