You should start saving for retirement in your 20s - here's why

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With the future of the pensions landscape unclear, our best bet is to start saving early.

The maximum New State Pension is currently just £164.35 per week, that’s an annual total of £8,546.20; if this were your only source of income, could you continue living comfortably into your retirement?

Many would likely rely on other government benefits to get by, although we can’t say with certainty that these benefits will still be available, and with ever-changing goalposts, it’s becoming increasingly difficult to plan for our futures.

There’s no doubt that most of us will need to top up our state pension with a separate savings pot that we have built up throughout our working lives.

In the early stages of your career, between student loans, saving for a house and thinking about your retirement, it can start to feel like your income is being stretched. It’s common for those in their 20s to want to spend their earnings on the here and now, with retirement feeling far into the future; however, starting early can give your savings a huge edge in the long-run.

The reason being that the most effective way of saving for retirement is by getting your money to compound; this is where the return on your money earns its own interest and so on, snowballing modest contributions into impressive sums. Essentially, compounding makes your money work harder.

Ideally, you should begin putting money into your retirement pot as soon as you start earning and certainly in your 20s. The earlier you do this, the longer your investments will have to earn interest. It’s also when the majority of us will be our most financially independent, with new priorities emerging into your thirties.

Many people put off saving for retirement until later life; it’s still achievable to build up a healthy pot, although you will have to put away more each month or earn greater returns on your savings each year – or both – if you wish to catch up with the amount you could have generated with earlier saving.

Auto-enrolment has been useful in encouraging younger people to think about saving for their futures. A workplace pension provided by your employer is one of the best ways to do this; you’ll get tax relief on the money you pay into the scheme each month and your employer will pay some money in for you on top.

Although you have the choice to opt out of a workplace pension you have been automatically enrolled onto, such benefits can really boost your pension pot so you should think very carefully if you are considering doing so.

If you’re unable to participate in a workplace pension, you can choose to save into a personal pension, self-invested person pension (SIPP) or stakeholder pension, without an employer contributing; you will still receive tax relief on contributions.

Some people decide to use an individual savings account (ISA) to save for retirement instead, the main advantage being that you are not taxed when you withdraw money; when you withdraw funds from a pension, you will receive the first 25% tax-free, after which you will taxed as if you are earning it. However, with an ISA, you will not receive employer contributions, or tax relief on your own contributions.

You can find out more about pensions here, or download our free basic pension guide. If saving for your retirement seems daunting and you would like to speak to an independent financial adviser, please get in touch by giving us a call or fill in the contact form below.


This is for generic information only and is not suggesting a suitable investment strategy for you. You should seek independent financial advice that takes your individual circumstances into account prior to proceeding with any course of action.

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