When Should I Start Saving For My Pension?
Saving for retirement can be a challenge, especially if your paycheck barely covers your daily expenses. As a result, many people are not getting to save for retirement. At this age, as you approach retirement age, you are likely to be thinking about how you will spend your retirement and how you will save. [Sources: 0, 11]
The good news is that there are some great ways to save for retirement, even if you are already up to the maximum. If you don't have a 401 (k) plan at work, your retirement savings are usually an Individual Retirement Account (IRA). ISAs can also play a part in your saving strategy and can be used alongside your pension to save up until retirement. For example, with a Government bonus that pays out £4,000 a year in savings, you could get 25 per cent of the savings you need for retirement. [Sources: 4, 7, 18, 19]
Assuming David waits until age 65 to start his pension, and he turns 80, his delayed retirement date would put him $120,000 more in his pocket than if it had started at age 60, provided he lived until age 80. Anyone who retires at 45 can make the same contributions over their lifetime. [Sources: 8, 10]
The promising news is that if you start saving in your early 30s, you will have time to build up your pension pot over several decades. Even if retirement is still a few months away, there is still time to build up money, so it is better to start early. [Sources: 5, 17]
How much you need to save will depend on how you continue to work and what your employer's pension scheme is. How much you get from your pension depends on what you invest, how much you save and what type of pension you have. Work out how many years you will need in retirement to work out how much you need to save. If you need more money to put away, consider this time - venerable retirement tips or some of my other retirement saving tips to find out what lifestyle I want when I retire. [Sources: 2, 7, 16, 20]
You may want to save for a pension, but you can do this in lieu of a pension or in addition to one. You may also need to save and invest to put more into retirement than just your pension, and you may also want to give away more. [Sources: 18]
Moneyfarm's annuity calculator lets you work out how much you need to save each month to get the income you want in retirement, starting with one of our regular investment plans. If you start saving 15 per cent of your £30,000 salary at age 30, your pension pot will be worth £196,100 by the time you retire. You can also use the Money Advice Service's pension calculator to estimate the amount of pension income you could get from your personal pension or company pension when you retire. [Sources: 6, 10, 21]
If you started saving for retirement at 25 and assumed a 6 per cent return, you would have around £190,000 by the age of 65. If you wait until age 45 to start saving, you will have to put 41% of your salary into your pension. How much you save now will depend on how close you are to retirement, as long as you aim for a retirement income of one-third of your current salary. [Sources: 11, 12, 14]
Remember that your personal savings rate will depend on a number of factors, including when you plan to retire, your income level and when you start saving for retirement. The best time to access funds in your account or plan will be when you start, how much you have already saved. This will of course depend on what decisions you make before retirement, when and if you start saving. Once you have committed to saving for your pension, you have the choice of how and where you want to save. [Sources: 3, 13]
An analysis of the retirement age can be just as important as an analysis of when you receive social security benefits or your income from your job. [Sources: 8]
If you have a private pension, check whether you can access your pension early or late. If you are using your age to calculate your expected pension, which is shown on your annual statement, it is a good idea to check your chosen retirement age and make sure it roughly reflects when you are thinking about retiring. Most pensions allow you to stop contributing and stop making contributions in future if your situation changes or you decide you have a large enough pension to afford it. So when I retire now and retire with age I will probably start contributing, I can start now and not stop until my situation changes. [Sources: 1, 2, 10, 15]
If you do not have an existing private or company pension, it is not too late to start saving. Generally speaking, it is a good idea not to retire early if you can only contribute a small amount at first. [Sources: 9, 10]
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Sources:
[0]: https://www.synchronybank.com/blog/average-retirement-savings-by-age-55/
[1]: https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/when-can-i-take-money-from-my-pension
[2]: https://www.dnb.no/en/personal/pension.html
[3]: https://www.bankrate.com/retirement/how-to-save-for-retirement/
[4]: https://www.moneyadviceservice.org.uk/blog/six-reasons-to-start-saving-into-a-pension-now
[5]: https://www.workplacepensions.gov.uk/employee/workplace-pension-myth-buster/
[6]: https://blog.moneyfarm.com/en/pensions/pension-when-start-saving-retirement/
[7]: https://www.investopedia.com/retirement/top-retirement-savings-tips-55-to-64-year-olds/
[8]: https://www.thebalance.com/when-to-start-your-pension-2388767
[9]: https://www.scottishwidows.co.uk/retirement/retirement-explained/approaching/review-pensions/
[10]: https://www.pensionbee.com/pensions-explained/pension-contributions/when-should-i-start-a-pension
[11]: https://www.mymoneycoach.ca/blog/how-to-save-for-retirement.html
[12]: https://www.irishlifecorporatebusiness.ie/defined-contribution-plans-how-much-should-i-save-my-retirement
[13]: https://www.fidelity.com/viewpoints/retirement/how-much-money-should-I-save
[14]: https://www.investopedia.com/articles/personal-finance/092414/retirement-what-percentage-salary-save.asp
[15]: https://thepeoplespension.co.uk/when-you-can-take-your-pension-money/
[16]: https://magazine.vitality.co.uk/building-your-pension-nest-egg/
[17]: https://www.fool.com/retirement/2019/09/02/this-is-the-age-most-people-start-saving-for-retir.aspx
[18]: https://www.gocompare.com/savings/are-pensions-better-than-savings-and-investments/
[19]: https://www.youinvest.co.uk/pensions-and-retirement/pensions-explained/when-to-start-saving-for-a-pension
[20]: https://www.finance-monthly.com/2019/10/is-it-too-late-to-start-a-pension-in-my-fifties/
[21]: https://www.citizensadvice.org.uk/debt-and-money/pensions/starting-a-pension/how-much-pension-will-you-need/
