Savings Series: Saving for retirement
A guide to retirement savings by Furness Building Society
Many Brits only truly begin to understand the importance of having a plan for retirement in later life. But having the appropriate funds ready for use in your senior years, when grocery and household bills are still landing, is vital. For many, knowing how to start saving for retirement, or even how much to set aside, can be a bit of a struggle.
In this step-by-step guide, we’ll walk you through everything you need to know about saving for retirement, including how focused your savings should be at each stage in your life. We’ll also offer some top tips to enable you to utilise all you can and maximise your money along the way.
Saving for retirement by age
Saving for retirement at 20
In your twenties, the prospect of saving for your latter years seems far from important. You may well feel you’ve only just stepped foot into the workplace and having a monthly salary may be a new phenomenon.
As you begin to navigate life’s expenditure, it’s important to consider building a rainy day fund, slowly but surely, until you’ve hit around 6+ months' worth of living costs. It's a process of creating a habit at this stage and will help you to kickstart those funds. At the very least, make sure you’ve enrolled in your workplace’s pension scheme and utilise your company's full match limit.
Saving for retirement at 30
Reaching thirty, many of us will likely be climbing the ladder at work and saving may become a little more realistic. Whilst ongoing student debt and new life milestones continue to eat into your finances, it’s still important to keep an eye on those retirement savings.
If home ownership or the prospect of starting a family has begun to take hold, try to keep your retirement savings separate from these new ventures. As these new saving goals become more of a reality, it may be tempting to reduce or even halt your pension contributions, but it’s important to keep this momentum going.
When selecting the right savings options, you might want to consider the benefits of Fixed Rate Bonds, whether two or five years. These bonds typically offer higher interest rates and keep your finances safe - and growing - for an agreed period of time. Before entering into these account types, you’ll need to be sure that you don’t need to touch your money for the agreed time.
Saving for retirement at 40
Your forties are really a pivotal time for your savings. By this point, experts will tell you that you should be aiming for three times your annual salary in retirement. If you’re not yet there, don't panic. There are plenty of measures you can put in place to help maximise this. Why not consider moving your funds into a Fixed Rate ISA Account and utilising the max allowance. This way you can make your money work harder for you.
At this stage in your savings you might want to review your current pension contributions and consider upping these if you’re able. If you’re struggling to increase the contributions over time, now’s the time to consider taking on a side hustle, switching jobs or managing your money to help alleviate the strain.
Saving for retirement at 50
By the time you’ve reached the big 5 0, you should be able to paint a clearer picture of how your retirement savings are looking. You might want to think about readjusting your contributions in the final stretch to make sure you’re reaching your end goal.
If you have investments in place or a financial strategy with an advisor, now would be a good time to check in and make sure it lines up with your retirement aspirations. Your fifties are the perfect time to get your ducks in a row, pay off any old debts and work towards bringing your final mortgage payments to a close.
After a lifetime of jobs, you’ll have built-up pension contributions with various employers. It’s vital now that you bring these together into one central place, so you can really assess the value of your contributions.
Saving for retirement at 60
Retirement may be just around the corner! With the average retirement age sitting at 65 here in the UK, you’ll likely be entering your final few years of full employment.
With that in mind, you’ll want to consider some sizable contributions to your retirement savings and dedicate a good portion of time and effort to making sure these are in tip-top shape.
Saving for retirement FAQs
Why is it important to start saving for retirement early?
Whilst the largest deposits of money might be more readily available to you in later life (when average incomes are typically higher), there’s still real value in building collateral early on.
Though they may be small, savings in your twenties can grow when invested within an account offering you interest. You may even find that those smaller sums eventually grow to larger amounts than your later deposits of cash further down the line. The sooner you can start, the better.
Check out the various savings accounts around via the Savings Hub.
How soon should you prepare for retirement?
Ideally, you should start saving in your 20s. The earlier you start saving, the more time your money has to grow, therefore improving your financial security in retirement. However, don’t worry if you didn’t save in your 20s - making a start is what’s most important.
There’s no set rule for saving. When and how you save depends entirely on your individual circumstances. So, what works for one person, may not work for another. For some general guidance, take a look at the sections above for advice on saving for retirement in your 20s, 30s, 40s, 50s, and 60s.
How do I build a retirement fund if I’m self-employed?
If you’re self-employed, you’re not bestowed with the luxury of being automatically enrolled in a workplace pension scheme - and that makes a private pension particularly important.
In the same way, your work requires your independent and direct management, and so will your retirement finances. When self-employed, it’s definitely worth considering setting up a private pension. The great thing about this is that you will be eligible for tax relief, meaning 100% of your deposits - or up to £40,000 a year - is tax-free.
For more information on building your pension, take a look at our guide to retirement savings for the self-employed.
How much should I save for retirement?
Retirement planning can be daunting, especially when you consider all the factors that come into play. One important consideration is your mortgage, as it can have a significant impact on how much you need to save. If you're still paying off your mortgage by the time you retire, you'll need more money in your retirement fund than if you own your home outright. And let's not forget about those dreams of travel or other fun activities you've been putting off. You'll need to factor in those expenses separately from your everyday living costs.
As for how much you should aim to save, there are different formulas out there. Some experts suggest saving 10 times your annual salary. Of course, this can be complicated by career changes and salary fluctuations. In this case, it can be a good idea to aim for a retirement fund that equals about two-thirds of your pre-retirement income. To calculate a personalised retirement savings goal, you can use online tools like the Money Helper’s pension calculator.
Don't forget to consider how your spending habits may change during retirement. You might find yourself spending more money at the beginning of your retirement on things like travel or home renovations. Later in life, expenses may shift towards healthcare or assisted living.
As retirement can last 20 years or more, it's crucial to ensure that your pension fund is sufficient to cover your expenses throughout your golden years.
What is the 5% rule in retirement?
When planning for retirement, you may have encountered the '5% rule'. This rule relates to how much you should withdraw during retirement. It’s recommended to withdraw no more than 5% of your savings in the first year and make adjustments every year for inflation. Of course, how much you withdraw is ultimately up to you, but following this rule could help ensure your savings last throughout your retirement.
Next steps
Whether you’re just starting out and laying down some retirement plans, or you’re a little further on the way, we hope this article has inspired you to keep saving.
Get in touch to discuss your retirement plans and see how our savings, bonds and ISAs can help you on your way to financial freedom in your later years. Send us a message, call our team on 0800 834 312 or visit us in branch to find out more about how our savings accounts can help you.