Retirement is often the last thing we want to talk about, especially when it seems so far off in the distance and short-term needs such as home improvements take priority. However, it’s important to plan ahead. For many, decisions about retirement are left too late – but you don’t have to be one of these people! Read on to learn more about planning for your retirement.


When is the best time to start retirement planning?


Now. The best time to begin planning for your retirement is right here in the present moment. Give yourself and those closest to you the peace of mind that when the time comes for you to retire, you are financially independent. Retirement does slowly creep up on all of us and many find themselves unprepared financially as they transition from drawing a salary to drawing a pension.


It’s important to think about the lifestyle you want to maintain during your retirement and quantify how you can achieve this while you are still able to make regular contributions to your pension. Sadly, yesterday has already been and gone so give yourself the best opportunity to achieve a comfortable retirement by doing your research and reviewing your options today. Whilst you can still achieve a respectable pension pot starting later in life, you may not be able to achieve and maintain the lifestyle you desire, and with fundamentals such as utilities and insurances or car warranties on the rise, it is wise to start planning ahead.


The benefits of starting early


Interest, interest, interest! The longer you make contributions, and the longer your money is invested in a pension, the greater the return will be on your investment. Starting next year, when retirement is still 30 years away, may not seem like it will make a difference, however, let’s take a closer look:


  • Scenario 1: Investing £100 a month into a pension fund with an assumed 5% annualised return. Assume regular contributions and the profits are reinvested over the course of 30 years. You would have invested £36,000 and your fund would be valued at £81,553.69.
  • Scenario 2: Investing £100 a month into a pension fund with an assumed 5% annualised return. This time starting a year later, assume regular contributions and the profits are reinvested of the course of 29 years. You would have invested £34,800 and your fund would be valued at £76,501.13.


In Scenario 2, you have invested £1,200 less than Scenario 1, but your overall return is £5,052.56 less than Scenario 1. The £1,200 you did not invest leaves you with £3,852.56 missed earnings by starting one year later. That is the cost of that luxury cruise holiday you have been dreaming about! The above is a nominal example of £100 per month; the return will be far more if you are already contributing more than this.


Another great reason to begin planning your retirement early is that it affords you greater options when it comes to choosing when to retire. Retirement and the state pension age in the UK is 67 years old for people born after 6th March 1961, however, private pensions can typically be accessed from the age of 55. With a healthy and sizeable pension fund available to you, and with other possible investments, there may be the opportunity to retire early – an opportunity that may not exist if you start your retirement planning later.


What to do if starting your pension later in life


It is never too late to start planning for your retirement, even later in life. Assuming at the age of 50 you have little to no pension funds in place there are still steps you can take to achieve a comfortable retirement.


A good place to start is to research what funds and assets you do have available to you. These do not necessarily have to be pensions, but money you have tied up in other assets such as property, savings and investments. This may reduce the need for a large pension fund.


If you are planning for your pension to be your main source of income during your retirement, you will likely need to consider increasing your monthly pension contributions. The return on investment of your fund grows exponentially the longer your money is invested, so if your savings are only invested for a shorter period, increased contributions can help compensate for this.


If you are investing £200 per month into a pension fund for 30 years, at an annualised return of 5%, to grow an equally sized fund over half the time, you would need to be investing £600 per month – that’s triple the amount you would have been saving had you started 15 years earlier!


Where should I save my money?


The answer to this question depends on the individual as different ways to save for retirement carry different levels of risk. Investing your money directly into the stock market carries more risk than keeping your cash in a savings account. However, the potential reward from investing your money into the stock market will far outweigh the return of a savings account, though the possibility does exist that you may lose money. It all comes down to the level of risk you are willing to expose your savings to. If you are younger, and retirement is still a way off, you may feel comfortable taking on a higher level of risk with your money in the hope for a greater return in the long run. However, if retirement is just around the corner, you may choose to be more cautious with the level of risk you are prepared to take on.


Investing your savings into a pension fund is an effective way to plan for your retirement. It carries less risk than investing directly into the stock market but also provides a better return than a regular savings account available on the high street. Most pension providers offer a range of funds to invest in with differing levels of risk and expected growth, so you are still able to maintain control over the level of risk and potential return.


Contact our friendly team at The Sustainable Pension Company to find out how you can maximise your retirement in a sustainable and ethical way, today!