Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Reading Time: 8 minutes
Updated 20th May 2024
Planning for retirement can seem like a daunting prospect with so much to consider. But building up a nest egg needn’t be an unnecessary stress, whatever your age.
Here are some tips for putting your money to work wisely and future-proofing your savings with easy and safe investments as well as tips for your timeline.
- Work out how much you will need
- Work out your timeline
- Think about your investment options
- Check what you actually have in your pension
- Boost your retirement income
1. Understand How Much You Will Need
The first step to truly being able to plan for retirement is to understand how much the average person needs to save for a comfortable future.
According to Retirement Living Standards, a couple needs £59,000 per year for a comfortable retirement, while singles will be looking at an income of £43,108 per annum. This all also depends, of course, on where you live and what you deem “essential”.
The absolute bare minimum figures are £14,400 for a single person and £22,400, if you are willing to watch your budget throughout your retirement. Of course, by the time you retire, these figures will also have increased due to inflation.
Take a look at our article that explains how much you need to have saved into a pension for more on this point.
Individuals get just over £11,502.40 a year from the full State pension in 2024 (that will change over the years of course) so if you’re about to retire you can factor that in to your annual income. However, even to get another £10,000 a year in income from your investments, assuming a 3% return (which is a fairly safe assumption to ride out spikes and troughs) you would need a retirement pot of at least £250,000.
The ‘multiply by 25 rule’
One way to calculate how much you might need in retirement is to follow the “multiply by 25” rule.
Multiply your desired annual income in retirement by 25. This will bring you to an approximate figure for how much you need to save.
Understanding Auto-Enrolment and Your Workplace Pension
In 2011, only 0.9million UK workers opted in to their workplace pension. Since automatic enrollment (auto-enrolment) was introduced, that figure has risen to 10.9million workers in December 2023.
There are some difficulties if you are on minimum wage or part-time and qualify for auto-enrolment, especially as the trigger level remains at £10,000 salary which does not reflect the cost of living and inflation/pay rises. If you’re on a low income but qualify for auto-enrolment, it’s tempting to opt out to save some money each month.
However, at the low end, the amount you’re getting in your pocket now is minimal – and not topped up by employer or Government contributions to your pension. You’re giving away free money for your retirement! If you can afford to, opt back in to your workplace pension as it will mean your employer pays into your pension, too.
If you’re getting closer to retirement and can live comfortably on your current income, it could also be worth requesting increasing your pension contributions. This can be a tax-efficient way to save for retirement.
2. Understand Your Timeline
Once you’ve understood how much you might need from retirement age, you have to look at your timeline to achieve that, too.
You can never start saving too early. How much money you will need for an estimated number of years can be hard to calculate, but there are steps you can take as you enter different phases of your life.
Your 20s
Saving in your 20s means you benefit from more long-term savings plans which could yield better returns over time.
Even small contributions each month means compound interest will be on your side.
Really, you could put in a tenner a month and, thanks to compound interest over decades, it would still create a really decent pot for you when you come to retire.
It’s also a really good idea to join your workplace pension as you then get ‘free money’ from your employer, plus the tax back from the Government that all pension schemes get.
If you’re self-employed you just get the tax advantage but it’s still worth having.
Making smart choices early on will set you up well for later life and might even lead to you being able to take early retirement.
It’s also really worth considering taking out a LISA (Lifetime ISA) as the Government adds another 25% to anything you put in (you can deposit up to £4,000 a year into one of these).
Your 30s
You’re still young enough to make a significant dent in what you’ll need to save to retire.
As time of writing, you’ll have 38 years to go until you reach State Pension age of 68 and a lot of time to gain a good savings pot from workplace pensions, where employers contribute a minimum of 3%.
Alongside this, you might think about building up value from other assets, such as a house, to boost retirement value.
Again, don’t forget the LISA which will help you put a deposit on a home or contribute towards your retirement.
Your 40s
In your 40s you might be established in your career and on a better earnings track than in your 20s and 30s. So this will free up more money for later on in life.
When you save for retirement in your 40s, larger amounts need to be set aside than in your previous decades.
You’re also more likely to be on the housing ladder and can consider using your property to help fund your retirement later on. However, it’s much better, on the whole, to have investments separate from your home, so make some time to really look into good places to help your money grow.
Your 50s
Your 50s is a good time to seriously consider when you want to retire – if you want to. Many people, especially those who own their business, enjoy what they do and don’t want to retire!
You might also want to look at how you could go about taking your pension out of the pot, be it with annuities, a drawdown or a lump sum, now or later on. You can access a private pension from the age of 55. Taking money out now will reduce what you have invested for your later retirement.
Check to see that you have paid enough NI over your life to qualify for the full State pension. If you haven’t, you are allowed to pay for some years in some cases, and it could be a good idea to do that. Check your State pension age, too.
When you’re in your fifties you qualify for a free advice session with Pensionwise. It’s worth getting that so that you can have a good idea of what money you can expect to make in retirement and, also, whether you need to put more aside now in order to fund yourself later on.
It’s also a good idea to pay for independent financial advice at this stage. It’s about funding the rest of your life so you need to get it right. Find a recommended financial advisor here at VouchedFor.
Your 60s
In your sixties you could still be working or you may have already taken early retirement if you have the cash to do it. Check when you qualify for the State pension and remember that you have to actually apply to receive it. It doesn’t come automatically.
It’s also a good idea to consider putting off your State pension by a year. You can get more per year by doing that and, if you think you’re going to live a good, long life then that’s worth considering.
Nowadays more people are choosing to reduce their working hours and opt for semi-retirement first, rather than give up work completely. Many people enjoy working in retirement. Why shouldn’t you keep in ‘life’ by working rather than staying at home?
If you’re looking to find a side-earner to supplement your income before or after pensionable age, we have loads of ideas in the Make Money section so take a look there.
3. Research Your Investment Options
You might want to look into getting help from a financial planner or financial advisor to understand the investment options that will best help you retire with a healthy savings pot. Doing this as soon as possible means your money is put to work in more productive ways from the get go.
Find a recommended financial advisor at VouchedFor.
- Look at investing, or, if you already do, how you can maximise your various investments (called a portfolio) on an ongoing basis, is a good way of making sure your money is being put to work in the right places.
- This could mean investing in ISAs, bonds or floating some money on the stock market, which has been proven to be one of the best ways of growing your money long-term.
- Once you decide to invest you need to think about whether you want to do-it-yourself or hire in help. Here’s a guide to using a financial advisor or going it alone and DIY investing.
4. Check Your Pension
It can be confusing to know exactly what you have from the different pots available. Here are a few ways to check your pension annually.
State pension
It’s a good idea to regularly check your State pension forecast. You can do it online or request a State Pension statement so you can see how much State Pension you’ve built up so far.
You can apply for one online or by phone or post if you are aged 16 or over and at least 30 days away from your State Pension age.
You’ll find details about how to do this at GOV.UK
Defined benefit (final salary) pensions (DB)
Final salary pensions pay a retirement income based on your salary and the amount of time you’ve been part of the scheme.
It’s generally only public sector or older workplace pension schemes that offer DB pensions, and members of one will usually be sent an annual statement by the scheme.
If you don’t receive this, you can request it.
The statement shows how much pension you might get. It might assume that you take your tax-free cash lump sum.
Defined contribution (DC) pensions
These schemes mean you build up a pot of money you can use to provide yourself with an income in retirement. The value of the pot is based on your contributions, your employer’s contributions plus investment returns and tax relief.
They can be run through an insurance company, master trust provider or you might be a member of a bespoke scheme set up by your employer.
Annual statements will give you an idea of the monthly retirement income you can expect. It might not assume that you take your tax-free cash lump sum, however.
In this type of scheme you have freedom over how you can access your funds if you’re over the age of 55.
Combining your pot
Consolidating your pensions from different workplace plans can make it easier to know what you have in total. PensionBee is one company that does this, and they provide an easy to use platform for both choosing what type of pension you want and consolidating existing pensions.
Find out more about PensionBee and how you can retire early with this free eBook that we produced.
5. Boost Retirement Income
One way to boost your retirement income is to increase your regular savings early on.
- Adding to regular savings pots over the years can pay dividends later on in life.
- Adding lump sums to your pension is another way to boost savings. If you receive some inheritance or are given a sum of money the interest on that over 20 years in a pension savings account could more than double it.
- Other things you could consider are retiring later in life, moving to a less expensive area or downsizing, or rent out part of your house (even renting out your driveway could earn you money).
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
Informative article.