Thinking about your retirement and trying to figure out how you’re going to fund it? You’ve come to the right place. Maybe you haven’t started working yet, or perhaps you’re thinking of changing jobs soon. Whatever your circumstances, it pays to plan for the future, and one of the best ways to do that is by starting a pension as early as possible.
We aren’t all lucky enough to have a company-sponsored pension scheme. That means that most people need to set up their own personal pension if they want to retire one day with any kind of financial security. But how much do you know about pensions? Do you know when you should start contributing towards yours so that your retirement fund has time to grow? If not, read on for some useful advice on the subject…
The years 18 to 64 are known as the “working age’’ of a person. If you’re not in school, this is the time in which you can expect to have the most income-earning potential. Once you hit age 65, you’ll be able to start receiving Social Security benefits. The sooner you start saving for your retirement, the better.
But how much should you save? And at what age should you start contributing? These are common questions many people have, especially those who are just getting started on their path to retirement. In this article, we explain the answers to these questions and how to start saving for your pension.
What is a Pension?
A pension is a regular payment made to you during your retirement, usually as a percentage of your salary when you were working. This is generally paid by your employer, although some private pensions do exist.
The reason companies offer you a pension is because, by putting money away for retirement, you’re giving them a way to offset the fact that you won’t be paying into your salary once you retire. It’s kind of like a thank-you from your employer for taking the risk of saving for your future.
When you retire, you’ll receive either a lump sum payment or a regular income, depending on the type of pension you have. There are three main types of pension:
- Defined Benefit
- Defined Contribution
A Defined Benefit pension is a regular payment that’s based on how much you earn and how long you’ve been at your job. A Defined Contribution pension is an amount of money you contribute, either through a company or through a personal pension you set up yourself, and it’s invested over the course of your working life.
Whereas, a Hybrid pension is a mixture of Defined Benefit and Defined Contribution pensions, where you contribute to a regular retirement fund over the course of your working life to get tax breaks while saving money at the same time.
How Much Should You Save For Retirement?
The best way to find out how much you should be saving for retirement is to use an online calculator. There are plenty of them online, and they’re easy to use. All you need to do is input your age and salary, and the calculator will tell you how much you should be saving for retirement.
The standard amount for people over the age of 25 is around 10%. This means that if you earn £30,000 per year, you should be saving around £3,000 per year. The thing with these figures is that they’re just a guide.
Everyone’s situation is different, and there’s no one-size-fits-all solution when it comes to savings. If you have a special occasion coming up and want to treat yourself, for example, you could put that money towards your retirement fund instead. It all depends on your individual situation and what you value more.
How Old Should You Be To Start Contributing Towards Your Pension?
This is something that only you can decide. There’s no set age when you have to start contributing towards a pension, but the sooner you start, the better. That’s because the longer you wait, the less time your money has to grow and the more you’ll have to pay into your pension fund as you get older.
Essentially, the earlier you start saving, the better. That said, if you’re young and just starting out in your career, it can sometimes be difficult to find the extra money to put towards a pension. Whether you’re working or studying, there are ways you can start saving.
One option is to make regular savings into a stocks and shares ISA or SIPP account. You won’t be able to claim tax relief on these accounts, but they’re a great way to start saving towards your future.
Should You Invest Your Money too?
Now, this is a question that will be highly dependent on your situation. What are your current financial circumstances? How much do you currently have in savings? If these numbers are high, and your current income is low, the answer is almost certainly yes.
You should be contributing as much as you can towards your retirement, and you should be investing your money too. The best way to do this is through a low-cost investment account. There are many online investment platforms out there.
Many of them have free or cheap services that provide little to no fees. You can also find low-cost broker-dealing accounts online. You can use this account to trade stocks, bonds and other financial instruments. Investing your money wisely can result in significant returns over time. You can also use this money for future expenses or for emergencies.
Whether you’re just getting started on your path to retirement or you’re a veteran that wants to improve your finances, there’s a lot to learn. We’ve outlined the major steps that you need to take to have a successful retirement. If you’re currently working, you can start contributing a portion of your salary towards your pension at age 18.
That said, it will be a little while before you start to see any significant savings. The earliest you can start collecting Social Security benefits is age 62. There are exceptions to this rule, though. If you’re in a very high-paying field, you can receive a larger early retirement payout.
Another option is to invest enough during your working years so that you can start collecting at a younger age. You can also ramp up your monthly payments in retirement. The earlier you start, the more time you’ll have to increase your monthly payments. Don’t fret though. There’s no reason you need to wait until you’re 62 to start contributing.