Why saving for retirement is a priority... not a luxury
Because...
- You just might want to retire and stop work at some point.
- We are responsible for ourselves now and in the future. It is not our parents, our children, our employers or even the state’s responsibility to see that we have enough to live on when we’re older.
- A 65 year old retiring now can expect to live for another 17-20 years, and over a third of all men will live beyond 90.
- The longer we live, the more money we’ll need to pay for those extra years - possibly including residential care.
- Surveys show that most people plan an active retirement with travel, hobbies, sports and socialising high on the agenda.
- The number of centenarians is rising rapidly and is now the fastest rising age group. (source: ONS)
- State pensions 2009 are not that generous. The Basic State pension is £5000pa. We shouldn’t expect it to be more generous in the future.
- State Pension ages are going up and are likely to rise further.
- Providing £20,000pa index linked for life would currently cost a 65 year old man somewhere in the region of £460,000. Adding a widow’s pension or retiring earlier increases the cost. *
- And that’s at current annuity rates and 6%pa returns. It’s a moving target as investment returns and annuity rates will change - but better to be onboard and going somewhere than stuck on the platform going nowhere.
- Procrastination is the expensive option. Starting young is the answer.
- As a rough guide a 20 year old should be saving 10% of income, a 30 year old 16% and a 40 year old 27% towards retirement.
- Compounding is a great way to save. £1000 saved by a 25 year old could be worth £10,280 at 6%pa growth at age 65. £1000 saved by a 45 year old at 65 would be £3,200.
- Can’t afford to save - but can you afford not to?
- Houses are not ATMs. Downsizing at retirement will rarely provide enough capital to fund a comfortable lifestyle - and we’ll still need somewhere to live.
- Banking on an inheritance might not be a wise idea - elderly parents might need nursing care. Pop goes their savings!
- Don’t trust pensions? It is still the most tax efficient way to save with tax relief on contributions and most of the growth. Make hay whilst the sun shines.
- If a basic rate tax payer makes a contribution of £100, it immediately becomes £120.
- If you’re employer contributes to a scheme - join it. Why turn down a pay rise?
*assumes net investment return of 6%pa. Based on rates in October 2009.