Whether you’re a young person just starting out in the world of work or you’ve been steadily inching your way up the career ladder for a while now, one thing’s almost certain – your savings account could look healthier. The importance of saving regularly, consistently and abundantly is easy to overlook – we live in a world full of temptations, after all, and the idea of foregoing this year’s much anticipated holiday in favour of shadowy future rewards can seem – well – less than appealing. When you’re working hard it’s easy to spend money on unnecessary items to make it all seem worthwhile – when all’s said and done, what’s the point of working a sixty-hour week if you still have to bring your own sandwiches to work, or deny your children the comforts you’ve always dreamed of providing for them?
But the cold reality of the matter is that, as our life expectancies improve, the amount of time we’re going to be drawing our pension for increases – and the necessity of putting enough money aside for the future becomes ever more important. And with constant changes to pension plans often slipping under the radar (a 2015 study of young voters found that pension plans didn’t even register as an influencing factor for first time voters) and politically uncertain times ahead, can you be sure that you’ll be looked after in your old age? What about if you want to retire early, or move abroad? How can you be sure that you’ve ring-fenced enough money away to cover all eventualities?
The simple (if unpalatable) truth is that you need to save as much as possible, for as long as you possibly can. A recent analysis from The Telegraph found that, in order to draw an annual pension of £25,000 from age 60, you and your employer need to have been making a combined annual contribution of £1,233 from the age of 25 – but if pension plans were a consideration when it came to choosing your career when you were in your twenties, then you are in a minority. Most people simply don’t think about doing some serious saving until they begin to approach middle age – and then you’ve got a lot of time to catch up on.
So, if you’re starting to feel panicked about the size of your pension pot, how can you kick-start your savings? Other than feeding your family plain rice non-stop for the next five years, selling all your clothes and declaring yourself a squatter in your own house to avoid mortgage payments, there’s a few tricks for maximizing the savings you already have with comparatively little effort.
Firstly, you need to make the most of the tax breaks available to you – as of 6th April 2016, the new Personal Savings Allowance means you can earn up to £1000 pounds of interest per tax year on your non-ISA savings, so make sure your savings account is maximizing your accruals. If you’ve already accumulated significant savings which are likely to earn you interest in excess of £1000, you should also make sure you’re putting some of your money into an ISA, to avoid paying unnecessary tax. It’s particularly worth taking this advice if you’re a higher or additional rate tax payer, in which case your interest free Personal Savings Allowance is diminished or nonexistent.
Another way of accruing savings is to consider moving into a smaller property – this is probably the easiest way of building up a large nest egg. As you approach retirement and your children leave home, you may find yourself more comfortable somewhere smaller anyway – and the profits from your sale may just get you that villa in Spain you’ve been dreaming of.
There are several strategies you can undertake to make the most of your savings, but the best way to ensure you’re looked after is to start saving as early as possible, and late is better than never – so whether you’re 25 or 55, start setting money aside today.