Whatever your plans for retirement, start making them early

Back to results

When you’re just starting out on your career the idea of retiring seems like a lifetime away and it is. Unfortunately most young people see this as a reason to stick pension planning on the back-burner, but if they instead saw the time they’ve got as an opportunity, it could make a massive difference to their finances in later life.   

Start planning for retirement early 

When it comes to planning for retirement, the golden rule is to start early. Making an early start means you’ve got longer to build up your pension pot and it’ll get you into the habit of saving for the future. You’ll also be surprised at how quickly things add up.

Imagine, for example, you put £10 aside each week. By the end of the year you’d have over £500. And it’s a lot easier to save small and regular amounts than trying to find lump sums you can squirrel away.

The other reason for making an early start is that it gives your money more time to benefit from investment growth and the effect can be startling. Imagine you’ve got £25,000 and you leave it to grow at 5% annually. After 25 years you’ll have just under £85,000. But if you left that money for 50 years you’d have just over £285,000 and so it’s worth leaving your money for as long as possible. It is worth noting that you may not always get back what you put in depending on your fund choice. Do your research to balance your expectations. 

Plenty of possibilities when saving for later life 

When it comes to saving for retirement there are many different options. You can put money into an ISA, or invest in a buy-to-let property. You can even use your own home to fund your retirement and by paying off your mortgage as quickly as possible you can turn your home into a financial asset for the future.

But the most common way of saving for retirement is to start a pension and some of the most popular pension options are outlined below. 

Workplace pension

Perhaps the easiest way to save for retirement is to join your workplace pension scheme if your employer offers one.

Auto-enrolment legislation means that by February 2018 every employer will have to automatically enrol eligible employees into a workplace pension scheme and many already have to do this.

If your employer enrols you automatically into a workplace pension scheme you can decide to opt out, but there are some real advantages to staying put.

The first is that your employer will make contributions to your pension on your behalf and under the new auto-enrolment legislation these will amount to a minimum of 3% of your salary from 6 April 2019.

The second is that joining the scheme is very easy and everything will be done by your employer. The monthly contributions that you make to the pension scheme will come directly from your salary and so there’s little for you to organise

Personal pension 

Your employer might not yet offer a workplace pension and if you’re self-employed you won’t have access to one, but you can still set up a personal pension.

If you do, there are a few questions you’ve got to ask first: 

  • What are the set up and ongoing charges?
  • What rules are there about the timing and size of your contributions?
  • How good is the range of investment options?
  • Is it easy to transfer your savings to another scheme if you want to?

You’ll also have to decide what type of personal pension you want and there are three main types to choose from. The first is a standard personal pension that will offer a range of different investments and let you make regular monthly payments into your pension pot.

The second is a stakeholder pension and these have capped charges and offer a default investment strategy if you don’t want to make your own investment choices. They also offer options on making small and flexible minimum contributions.

The third is a Self Invested Personal Pension and these offer a wider choice of where you can invest your money and the types of asset you can hold within your pension. Generally speaking they are best suited to people making larger monthly contributions and who are comfortable making their own investment decisions.   

At the start of your working life it’s easy to think that you’ve got plenty of time to sort out your plans for retirement, but the sooner you begin the more chance you’ve got of saving enough to enjoy the lifestyle you’d like in later life.