Alasdair Walker, a chartered financial planner at Hunter Aitkenhead & Walke, says there’s no need to despair even if you’re already 35 with nothing saved, you just need to work out what has to be done.
“The good news is that a 35-year-old can start their retirement saving from £0, and still retire comfortably,” he insists.
Walker adds: “It might take a little more work but it’s definitely doable. The rule of thumb has always been whatever age you start saving, save half your age as a percentage of your annual income for the rest of your working life. A 20-year-old with amazing forward-planning would save 10 per cent, but a 40 year old would save 20 per cent. So, not an impossible task, but not painless either.
“How can we make this easier? My favourite method borrows from behavioural finance and is called ‘Save more tomorrow’. It’s easier to commit tomorrow’s budget than today’s, so start today with what you can reasonably afford, and agree (preferably with your pension provider or employer) that you will increase contributions annually for the next five years.
“That might look like 5 per cent today, and a commitment to add 2 per cent a year. Studies have shown this to be incredibly effective – in one example savings rates increased from 3.5 per cent to 13.6 per cent, with relatively little pain.”
If that still sounds painful to you then remember that it’s not all your contribution.
“The other point to remember is that the rule of thumb is ‘total savings’,” he explains. “A basic-rate taxpayer in employment can expect a minimum employer contribution to their pension of 3 per cent PA and a government top-up of 25 per cent on anything they save. The rather daunting 20 per cent target for a 40-year-old then becomes 13.6 per cent, after top-ups.”
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