Starting early is one of the best things you can do when planning for retirement. By contributing to pensions and investments from a younger age, you give your wealth more time to potentially grow and this could make it easier to achieve your desired lifestyle when you retire.
It’s easy to talk about the importance of starting early with the benefit of hindsight. However, you may not have been thinking about saving for retirement in your 20s or 30s. It seems so far away, and you may have had other important financial obligations such as a young family, for example.
Consequently, retirement saving may be neglected and this means that you may experience a shortfall in your retirement savings in later life.
Indeed, This is Money reports that more than a quarter of over-55s have no private pension at all.
It can be daunting to find yourself in this position, but even if you start late, you can still build your savings and possibly meet your goals in retirement.
Read on to learn five useful retirement savings tips if you started late.
1. Consider your desired retirement age and lifestyle
Deciding when you want to retire and what you want your lifestyle to look like is typically the first step when creating a retirement plan.
If you started late and have less time to build your savings, you may need to make some sacrifices. For example, if you want to retire at 65, you may not be able to save enough to generate the necessary income to fund your lifestyle.
As such, you might need to make a choice. You could either change your lifestyle goals and perhaps consider downsizing or opting to travel less often, for example, so you can still retire at your chosen age.
Alternatively, if you are not willing to make those sacrifices, you may decide to push your retirement back so you can save for longer instead.
It is important to be realistic about what you can achieve and consider what your priorities are when creating your retirement plan.
2. Maximise your pension contributions
Starting late likely makes it more challenging to build your retirement savings. That said, you may have a higher income later in life as you progress in your career.
Additionally, your children may have left home and you may be more likely to have paid off your mortgage. As a result, you might have more disposable income towards the end of your working life.
Indeed, according to Statista, those aged 45 to 54 had an average of £44,255 in disposable income per household in the 2021/2022 tax year. This is compared with people aged 18 to 24, who had an average of £36,370 per household in the same year.
This additional income that you may have now could allow you to maximise your pension contributions and build your savings faster.
Your employer also pays into your pension and if you increase your contributions, they may match them. Depending on your earnings and whether you’ve already accessed your pot, you may also benefit from valuable tax relief on your pension contributions.
So, consider increasing the amount that you pay in each month by as much as possible.
3. Check your State Pension entitlement
While your private pensions may make up most of your retirement savings, you might want to consider how much you will get from the State Pension too.
In the 2023/2024 tax year, the full new State Pension is £203.85 a week, so it offers you a significant boost to your retirement income. This could be very valuable if you started saving late and you are finding it hard to reach your savings goals.
Additionally, the State Pension rises in line with the cost of living and provides a guaranteed income. However, you may need to check that you are entitled to the full amount.
You will only receive the full new State Pension if you have 35 “qualifying years” of National Insurance contributions (NICs).
You receive a credit for each year that you earned at least £6,396 and paid NICs. Provided you have at least 10 credits, you will receive some State Pension. However, you only receive the full amount if you have 35 credits or more.
Fortunately, you may be able to buy credits for previous years to top up your NICs and ensure that you receive as much State Pension as possible.
As such, it may be useful to check how much State Pension you are entitled to and purchase additional credits, if necessary.
4. Consider the level of risk you adopt
When planning for retirement, it is important to consider the level of risk you adopt so you can generate growth while also protecting your wealth.
Typically, people take on more risk when they are younger as their investments have more time to recover from market volatility. Then, as they approach retirement, they may move towards low-risk investments.
While these low-risk options could be less likely to drop in value, they also might not provide as much growth. This might not be a problem for somebody who has already built up a significant amount of wealth in their pension.
However, if you started saving late, you may need to take a different approach. Even if you are in your 50s, you could still have 10 years or more before you plan to retire. As such, you can likely afford to adopt a slightly higher level of risk.
It is important that you consider this so you can potentially maximise the growth on your retirement savings.
5. Work with a financial planner
Working with a financial planner could help you catch up with retirement saving in several ways. Firstly, they can use cashflow planning to help you determine how much income you need to fund your desired lifestyle, and what you need to do to achieve this.
Having this clear goal tells you what is realistically possible in the time that you have. You can also use this information to guide decisions about your pension contributions.
A financial planner may also help you decide on the level of risk that is suitable for your retirement savings plan.
As well as this practical support, a financial planner offers peace of mind.
Indeed, according to Professional Adviser, 86% of advised clients said they felt they saw at least one benefit from the advice they received and 32% said it reassured them that they were doing the right thing.
This is incredibly valuable if you are concerned about a potential shortfall in your retirement savings.
Get in touch
It’s never too late to start planning for retirement and we can give you the support you need.
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This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate cashflow planning.