Most people are well aware of the importance of putting plans in place and saving money towards their pension. However, knowing how much to put away in order to achieve a comfortable retirement can be the tricky part.
To help Britons build up a healthy pension pot, James Norton, Head of Financial Planners at Vanguard, spoke exclusively to Express.co.uk and suggested how people should save for retirement from their 20s to their 50s.
He said: “Although it may seem daunting, the reality is that someone entering the workforce in their twenties is likely to invest in a pension for around 50 years.
“The later you start, the more you should put in. As an example, we can look at how much you would have to put into your pension on a monthly basis to end up with a pot of £500,000 by age 70.
“Assuming a five percent annual return, a 20 year old would have to invest £195 per month. Delay this for 10 years and a 30 year old starting a pension would need to invest £337 per month.
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“By increasing the total contribution to 10 percent the investor’s pension would be worth £265,700 – an increase of £53,000! Basic rate tax relief means this would only cost an extra £53.33 a month.”
Making pension saving a priority from a younger age could have a hugely positive impact on people’s retirement savings in the long run. Mr Norton encouraged people to start as early as they can.
He said: “No matter what your age, make a plan for your savings and stick to it. You don’t need to spend lots of precious time constantly managing your finances. Instead, take a moment to sit and write down your plans and goals, keeping them relevant to you.
“When it comes to retirement, there are always advantages to starting early – one of the main benefits of investing and pensions is the length of time investors have to benefit from compounding returns. So the earlier you can start saving the better.”
Mr Norton urged people to ensure they put more money into their pension as their salary goes up throughout their career.
He said: “Along with time, an obvious piece of advice is save more. When you’re younger, think about your savings contributions as a percent of your salary rather than a fixed amount.
“This means that as your wages hopefully increase over your career, so will the amount you are adding to your retirement pot.”
He added: “Another good habit is to increase contributions whenever you get a pay rise by slightly more than the percentage of that pay increase.
“So if your pay goes up two percent, increase your contributions by at least two percent. This way you are investing a little bit more toward retirement, which will compound over time.”
Mr Norton also suggested people check how much they are paying in fees on their pension funds, as lowering these could give their retirement savings a welcome boost.
He said: “No-one knows what investment returns will be going forwards, but one thing you can control at any age is costs. Every pound you pay in fees is a pound less for your savings or retirement.
“We recommend everyone review the fees they are paying and look to reduce them where possible.
“It’s never too late to start saving for your retirement, so don’t be put off if you’re no longer in your 20s or 30s.”
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