Life seems blissfully uncomplicated when you are young. People automatically assume they have years ahead of them, and words like pensions and retirement seem irrelevant and something they can happily put off for a few decades. However, research shows that the over 50s might well disagree with you, and if they could go back and speak to their younger selves, there are four important things they would like to say about pensions. As they cannot rewrite their history, they are instead hoping the younger generations will take time to read and learn from their mistakes.
When Aviva carried out a survey in the UK with people over 50 on pensions, more than half of those who responded said they did not start saving for their pension early enough. If your job comes with a pension option, take it. If it doesn’t, then, even if you are only 20, you should think seriously about starting a private pension. Twenty five percent said that although they started saving in their 30s, it has proven not to offer as much of a return as they hoped. Understandably, mortgages/rents and children tend to take the focus, but even if you can only afford a small amount, you should still save into a pension fund from the age of about 22. Some workplace pensions offer auto-enrolment; the advice is to go with it and not opt out.
An overwhelming majority in the same Aviva survey (64%), wished they had also been able to save more. In countries like the UK, a basic pension contribution is set at 5% of pensionable earnings. However, this is not set at an amount that offers the best retirement! The income you will need when you retire will depend on your life circumstances, and that may not be enough even if you pay consistently from the age of 20. If you climb the ladder and your salary increases, consider adjusting your contribution upwards. Maybe you won’t be able to afford to do it from day one, but as your income increases, reflect this in your pension. It is money you won’t see, therefore cannot miss, but will be thankful for when you hit retirement age.
Beware of Underestimating
So, just how much should you be saving?
Another issue that the survey concluded was the fact that 4 in 10 people were not able to estimate how much money they would need to have in their pension to offer them a comfortable retirement. The most common answer from this group was that an income of anywhere from £10,000 to £20,000 would be enough. However, the UK’S Pensions and Lifetime Savings Association puts the figure at £33,600 to reach a ‘comfortable’ standard of living once you have retired but this figure will vary dramatically from person to person. Thankfully, the advice above to save more and start sooner could mitigate this problem. Although it seems education is needed to ensure younger generations know how much they need to save during their working lifetime.
Take Professional Advice
A large percentage of those surveyed, 70%, say that while they never actually took professional financial advice, they can see that this was a failure, and they really should have taken the time to consult those in the know. Most people assume they know enough to get by and do not want to spend money. A tenth of the group said they relied on their friends or family members for advice. You could miss out on a lot of pension income if you do not consult a professional financial adviser, and the fee they charge is a drop in the ocean compared with the valuable financial planning you will receive.
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