What age would you like to retire? Personally, I want to build up enough wealth to pack in the day job aged 50. I’d like to be free to spend my time doing as I please. From going on cruises to spending time with my grandkids, I love the idea of achieving financial freedom at a relatively early age.
I should probably be a bit more realistic. After all, I’m still waiting for the auto-enrolment pension scheme to be forced upon my workplace and as of yet, I have no pension savings whatsoever.
And judging by PensionBee’s pension calculator, I have a lot of work to do if I want to retire with £20,000 a year. Apparently, if I save the amount I was planning to put away up until the age of 65 (trying to be realistic), I’ll only wind up with £16,000 a year. This has been a wake up call.
I know I’m certainly not alone when it comes to having a non-existent retirement fund. According to research from YouGov, 44% of 18-34 year olds say they have no pension provision whatsoever. Thanks to sky high living costs combined with modest salaries, this isn’t really that surprising. For many people, saving money for old age is downright impossible because it’s a struggle to even put food on the table.
Of course, most of us don’t face such dire financial circumstances. We have enough money to cover our bills, live a healthy social life and perhaps shove some cash in a Help to Buy ISA at the end of the month. However, with so many imminent costs and large life milestones to take into account, setting money aside for 40+ years into the future can understandably fall way down on our list of priorities.
Unfortunately, failing to make retirement a top priority could prevent many of us achieving a comfortable lifestyle in retirement or even stopping us retiring at all. At present, there are countless pensioners who are struggling to get by due to their reliance on the state pension which currently stands at just £159 a week. This problem is only going to get worse…
The state pension age is on the rise
Up until recently, women could access their state pension aged 60 while men could receive theirs at 65. But with the general population living longer than ever before, the universal pension pot is under strain. As a result, the government is increasing the state pension age so that we’re each paying taxes for longer and taking less out of the shared retirement fund.
State pension age increases are tiered based on sex and date of birth. At the time of writing, Which? explains:
“You can claim state pension when you reach the state pension age. For men, this is currently 65 and for women it is currently 63, increasing to 65 by November 2018.
“From December 2018, the state pension age will rise for both men and women, until it reaches 66 in October 2020 and 67 between 2026 and 2028.”
Women are the hardest hit by the changes
Women born in the 1950s are being hit the hardest by the state pension changes. According to a report from the Institute of Fiscal Studies, increasing the state pension age for women has saved the government £5.1 billion a year, but it’s left 1.1 million women worse off financially.
The exact impact on these women depends largely on their preparedness for retirement. Many of those who saved throughout their lives are able to get by until they reach the new pension age. However, there are countless others who have little to no savings and now face financial hardship.
With so many women affected by the rise in their state pension age, Women Against State Pension Inequality (WASPI) was born. Leaders of the movement agree that the state pension age should be the same for men and women, but they disagree with the way that the changes have been introduced.
I read a fantastic article in The Independent recently in which Victoria Smith perfectly explained why the changes are so cruel:
Victoria spends the rest of the article urging young women to ‘stand shoulder to shoulder’ with those affected by the state pension changes. Although her article has received some backlash for the way it talks about our generation, I think she makes some really great points young people – not just young women – would be wise to pay attention to.
After all, for every young person who’s well informed when it comes to pensions, there are a number who have little to no pensions knowledge. I guess in an era of £9,000 a year tuition fees, graduate unemployment and unaffordable homes, we shouldn’t get too much stick for pushing retirement worries to the back of our minds. We’ve got enough to think about.
We can’t rely on the state pension
So what can young people learn from all this? I think the key lesson is that we really can’t rely on the state pension. Not only is there a good chance that the state pension will have risen into the seventies by the time we 20-somethings come to retire, there’s a risk the state pension won’t exist at all.
We need to become as self reliant as possible and find ways to build our wealth so that we can retire comfortably at an age we’re reasonably happy with. So how can we do this?
1. Stop telling yourself you won’t live that long
If you’re as neurotic as I am, you probably spend far too many of your waking hours worrying that you’ll die in a horrendous accident at a young age. Sometimes I worry that I’ll join the 27 Club by choking to death on a giant chocolate button and there’ll be no one around to save me. Sometimes I worry that I’ll spend 40 years saving into a pension only to retire and die the next day. Although that would be pretty ironic in an Alanis Morrisette kinda way, it’s unlikely to happen.
Most of us will live to a ripe old age so rather than saying “what if I save for retirement and die?’, ask yourself what will happen if you don’t save for retirement and live.
2. Make sacrifices
Track your spending every day for a month and look at exactly where your money is going. See if you can cut back on one or two unnecessary expenses to make a start on your retirement fund.
I know this all sounds a bit ‘millennials aren’t buying their own homes because they’re eating too much avocado on toast‘-y, but making sacrifices to your lifestyle will make a difference. I’m not telling you to give up everything you love, just most of it. I’m kidding. Sort of. Give up some of the fun stuff if you don’t want to be broke when you’re old.
3. Save whatever you can
Pension experts often recommend that 20-somethings set aside 15% of their income for retirement. Let’s be honest, this isn’t achievable for most people. If you can’t save that much, just put away what you can afford. Even if you can only put £30 a month into your workplace pension, it’s better than nothing. If auto-enrolment hasn’t kicked in for you yet, start saving in a high interest current account now. Once you have access to a workplace pension, you’ll be in a position to put more away. Are you your own boss? Here’s a great guide on managing your finances and saving for retirement when you’re self-employed.
4. Check to see if you have pensions from old workplaces
Gone are the days where you’d start work at 16 and stick with the same job until retirement. In this modern and ambitious technology-obsessed world, it’s far more common to have a job for a couple of years before hopping over to another company. As a result, many people put money into pension schemes with one employer only to move elsewhere and forget about the money they invested in their future.
If you think there’s a chance you have a pension with a former employer, chase them up. PensionBee is a fantastic tool for helping with this. It will help you combine your old pensions into one new online plan.
5. Educate yourself
It’s vital that we educate ourselves and understand the importance of planning for retirement. At the moment, so few young people are engaging with the pension debate that decisions are being made without our knowledge. I fear that if we don’t engage with the pension industry and educate ourselves on the options available, many of us – men and women – will be left out of pocket when we come to retire.
This post was created in collaboration with PensionBee. All opinions within this post are my own and based on my personal calculations using the PensionBee pension calculator.
PensionBee is authorised and regulated by the Financial Conduct Authority. With pensions, your capital is at risk. The value of your pension with PensionBee can go down as well as up and you may get back less than you started with.
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