So you have a retirement goal in mind, but how are you going to get there? Saving is something lots of people struggle with and, often, it can be because they commit to saving more than is realistic, and don’t budget for all the fun things they enjoy doing each month. This can invariably lead to dipping into savings and might bring you back to square one.
Sound familiar? We’ve all been there and we know it can feel frustrating, but it’s important to remember this doesn’t mean you’re ‘bad’ at saving! To help you forge a better relationship with money, we’re sharing four tips to help you make a retirement savings plan you can stick to, which will allow you to enjoy life today and in the future.
1. Start as early as possible
Time is a powerful tool when it comes to saving for retirement. It has the power to turn small actions taken now into big results in the future. The sooner you start saving towards your retirement, the less you’ll have to save each week or month compared to if you’d started later in life. Plus, your money will have more time to grow and benefit from the magic of compounding, which is when you earn interest on the returns from your original investment.
Let’s look at some examples…
If you were to start saving £20 a month into a Moneybox Pension at age 35, you could have £24,000 saved by the time you turn 65. But, if you started saving the same amount into the same account aged 25, you could have £45,200 by 65.
Difference = £21,200
If you were to double that to save £40 a month into a Moneybox Pension at age 35, you could have £48,100 by age 65. However, if you were to start saving the same amount 10 years earlier at age 25, you could have £90,500 by 65.
Difference = £42,400
Take that up to £100 a month into a Moneybox Pension from age 35, you could have £120,000 saved by the time you’re 65. But if you’d saved £100 a month from age 25, you could have £226,000 saved by age 65!
Difference = £106,000
So, if you’re able to, it’s worth your while to start saving into a personal pension today – even if it’s small amounts.
The above projections were calculated using the Moneybox Pension Calculator. They’re based on current interest rates in 2022 and assume you’re contributing regularly into a personal pension and do not include workplace contributions or State pension allowances. The projections also include the 25% pension tax relief from the government you receive on your deposits into a personal pension. Please note these figures are indicative only.
As with all investing, the value of your pension can go up and down, and you may get back less than you invest.
2. Be realistic about what you can contribute to your pension
Although it may feel like it sometimes, no one is inherently ‘bad’ at saving – the key is to be honest with yourself about what you’re able to commit to. As demonstrated above, we know that even contributing small amounts of money to your pension regularly can result in a healthy pot, so there’s no need to try to save above your means.
When figuring out what you can realistically afford to save, it’s worth considering:
- Your non-negotiables – that’s money that you have to spend each month. Think rent/mortgage, bills, transportation costs
- Your regular expenses – that’s the things that aren’t necessarily essential, but you know you’re almost definitely going to spend on. Think dinner dates, spontaneous trips to the pub, coffee on the go
- Costs that come around every few months – that’s the things that you buy or pay for consistently but not monthly. Think toiletries, clothes, holidays
While you’re looking at your finances, it’s a good time to look at the things you’re regularly spending on, that might be better spent or saved elsewhere. But remember, while it’s good to reel in unnecessary spending, don’t cut back so much that you struggle to get by financially each month.
Saving regularly can put you in good stead to reach your retirement goals. But, when you struggle to save – how can you make sure you’re putting money aside each month?
With a workplace pension, your contributions come out of your pre-tax pay – so you won’t even notice!
When thinking about saving into a personal pension, automation is your best friend. Once you know what you can afford to save each month, set up a regular payment plan and forget about it. That could be through weekly deposits or a payday boost, which allows you to set aside a portion of your pay each month. As long as you’re saving what you can afford – you won’t even notice it leaving your account.
Top tip: Set your regular payment to come out when you’ve just been paid to avoid accidentally spending it!
4. Maximise free money available to you
There are so many things working to grow your pension savings that you can and should take advantage of.
If you’re employed, it’s likely that you’ll be enrolled into a workplace pension scheme chosen by your employer. In a workplace pension scheme, your employer has to contribute to your pension along with you – meaning you’ll get free money into your pot.
Most employers contribute a standard 3% of your pre-tax salary per month, while you’ll likely contribute 5%. It’s a good idea to check what your employer is currently paying into your pension and whether they offer a higher pension contribution perk. For example, some employers offer to increase their contribution if you up yours too.
Pension tax relief
Pension tax relief makes saving into a pension one of the most tax-efficient ways of saving for your retirement. All it means is, whenever you make a contribution to your pension, the government tops up your pension with the same amount you would have paid in tax on those earnings in the form of a 25% bonus. So it’s basically free money from the government!
If you’re a basic rate taxpayer, we’ll automatically claim tax relief for you whenever you contribute to a Moneybox Pension – so you can watch the free top ups roll in without lifting a finger.
If you’re a higher and top rate taxpayer, you could be entitled to a higher rate of tax relief – but you’ll need to claim this back yourself by filing a HMRC self-assessment tax return.
As long as you’re paying income tax in a given tax year, you can usually get pension tax relief on contributions up to £40,000 – meaning you could earn up to £8,000 in tax relief!
Top tip: Don’t forget, compound interest will work its magic on free money gained from tax relief and employer contributions, on top of your own contributions, to grow a healthy pension pot.
Tax treatment depends on individual circumstances and is subject to change.
How does the Moneybox Pension work?
In addition to a workplace pension, a personal pension is a great way to grow a healthy pension pot. With the Moneybox Pension, you can:
- Track down and combine your old workplace pensions into one personal pension, with the help of our trusty Pension Detectives 🔍
- Get a free 25% bonus from the government on your contributions. So for every £4 you save, the government will contribute £1 (Pension and Tax rules apply) 💰
- Save as much or as little as you like, whenever and as often as you like with weekly deposits, monthly payday-boosts, one-off deposits or round-ups ✔️
- Track the performance of your investment 24/7 in the app 📲
As with all investing, the value of your pension can go up and down, and you may get back less than you invest. Payments you make into your pension won’t be accessible until the minimum pension age.
When deciding whether to transfer your pension, it’s important to compare the charges, investment options & benefits between Moneybox and your old provider. Moneybox cannot accept a transfer from a pension your employer is currently paying into.
If you’re not sure whether the Moneybox Pension is right for you, you may want to contact a suitably qualified financial adviser for help.