Pensions - planning and saving through the years

POSTED: 26th February 2014
IN: Guides

All the economic uncertainty and adversity of recent years has had many ramifications for consumers and businesses.

All the economic uncertainty and adversity of recent years has had many ramifications for consumers and businesses.

One of the positive potential outcomes of the credit crunch and recession is increased awareness of the need for financial responsibility and conscientiousness.


For some people, the economic crisis will have underlined the importance of contributing to a pension and making their financial future as secure as possible. However, the squeeze on disposable incomes means it is more difficult than ever for many people to spare anything from their monthly pay packets.

One of the best ways of ensuring you are financially ready for retirement is making a clear plan of what you want to achieve at different stages in your life.

Your 20s and 30s

Admittedly, there aren't many 20-somethings who will be dedicating much time to pensions and retirement planning. But experts have warned that people who are serious about guaranteeing their future financial security need to start thinking about these issues as early as possible.

Changes to the state retirement age mean today's young workers might have to wait until they are 70 before they are entitled to a pension. And with average life expectancies gradually increasing, retirees will need bigger pension pots to provide for their post-work years.

After speaking to pensions experts, Guardian Money reported that a 22-year-old would have to save an extra £39,000 to match state pension provisions of £7,800 a year, if they wanted to retire at 65 instead of 70.

Tom McPhail of financial advisers Hargreaves Lansdown said young adults wanting to bridge this gap would have to put away an extra £33 every month up to the age of 65.

He suggested that the most sensible policy is to start saving as soon as you can.

"Even a modest monthly saving now can make a real difference to your financial freedom in the future," said Mr McPhail. "Delay five years and you'll slash your eventual payout by as much as 30 per cent."

Many people in their 20s will have credit cards, loans and overdrafts to pay off, not to mention student loans. Their focus is likely to be on clearing their debts and simply saving what they can afford.

If you are in your 30s with a secure job and a steady salary, look into starting a company pension and get saving as soon as possible.

Your 40s and 50s

This is arguably the most important time of life when it comes to putting money away and planning for the future.

Your pension saving should be well underway by now, and if it isn't, you need to put some serious thought into how you intend to finance your retirement. This is particularly relevant for people in manual jobs, who may not be physically able to continue working until the state retirement age.

For the majority of parents, the 40s and 50s will be the period of life when you will see your children reaching adulthood, flying the nest and starting to provide for themselves. This will be an emotionally challenging time for many, but on the financial side you could benefit from a reduction in household bills, shopping costs and other outgoings.

Many people in their mid- to late-50s will receive an income boost after paying off their mortgage or loans on big purchases such as cars. This could be invaluable when it comes to pension saving.

Furthermore, this is a crucial time of life in career terms. People who took their first steps along a career path in their 20s and 30s may well have made some good progress by now, boosting their salary and possibly earning some healthy bonuses and benefits.

Speaking to, Martin Bamford, managing director of chartered financial planners Informed Choice, advised: "Make the most of pay rises and bonuses to boost your retirement savings, rather than simply increasing your expenditure each time.

"This is the time to take your retirement planning seriously, and that means having a target retirement age and understanding what your lifestyle will look like in retirement."

Your 60s and beyond

For most people in their 60s, retirement will be an imminent prospect, or at least something that requires very practical planning and preparation.

This is a time for ensuring that all of your financial affairs are in order, starting with any remaining debts or mortgage obligations.

You will also have to make key decisions such as whether to buy an annuity or take a drawdown pension. The drawdown option allows you to take income from your pension pot while the funds remain invested.

According to, annuities function 'like insurance in reverse', in that you hand over your pension as a lump sum to an annuity provider, and receive regular monthly payments for the rest of your life.

For people who want to continue working into their 60s, the good news is that employers can no longer force people to retire at a certain age. Most workers can now stay in their jobs for as long as they want to.

However, many people will see this period as an opportunity to relax and enjoy some well-earned respite from the hectic nature of day-to-day working life. With a bit of planning and forward thinking, there is no reason why retirement cannot be a fun and fulfilling phase of life.

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