When to start saving into a pension

You can start saving into a pension at any age, but ideally, the sooner the better. The earlier you start, the more chance you have of building a substantial retirement pot, as you’ve got more years in which to contribute and benefit from compound growth. Yet that’s not to say you can’t start saving later; doing so simply means you might need to save a bit more each month to build up a suitable sum, and you may need to consider utilising alternative assets as well. It also makes independent financial advice even more important, so you stand the best possible chance of meeting your goals.

Here, we outline things to think about if you start saving in your 20s, 30s or 40s, helping ensure you can have a comfortable financial future no matter when you start planning for it.

If you’re thinking about starting to save for retirement in your 20s, congratulations – this is the perfect time to start a pension. With pensions the advice is always the earlier the better, as it means you can save less each month than if you started at a later age and still can build a substantial retirement fund. In addition to this, starting a pension in your 20s enables you to make investment choices that could yield you better returns in the long term, and it might even give you the ability to take early retirement.

Whether you’ve just graduated from university and are about to start your first job or have been working since you left school, when you are in your early 20s you are still at the beginning of your career. This means that you will probably be working in an entry-level position and, as such, earning less than your more established colleagues. As well as this, if you did go to university you will likely be paying off student debts.

This is traditionally the decade when you move away from home and start living independently for the first time, which means you will be learning how to manage your household finances and could even be trying to save for a house deposit. Your 20s is also a time when you may want to socialise regularly and travel, or you may be planning to settle down and have children, in which case you could be thinking about saving money for a wedding. With so many different things competing for your money, when starting to save for retirement at this age you must be realistic about the amount you will be able to save each month, but remember that even a small amount is better than nothing.

The amount you will be able to put towards your retirement savings each month will depend on your personal circumstances – you will need take into account how much you earn each month and how much you have going out, as well as anything you may be saving towards, for example a house deposit or a wedding. Generally, the advice is to save as much as you can, but realistically you need to save what you can afford and fortunately by starting young you will still be able to gain a good retirement fund by saving just a small amount each month.

When starting a pension it is a good idea to consider when you want to retire and the income you'll require to help you determine how much you will need to save each month for your retirement. To give you some sort of guideline with the amount you should aim to save, you can consult a pension calculator.

There are a number of ways you can start saving for retirement at 20, but one of the easiest options is to join your Workplace Pension Scheme. At the age of 22 you will automatically be enrolled in your workplace pension, as long as you earn £10,000 or more. If you are eligible it is usually advisable to allow yourself to be automatically enrolled, because it not only requires you to pay in, but your employer has to contribute as well. The money contributed will be automatically deducted from your wages – the amount is normally a minimum of 5%, and your employer currently has to contribute a minimum of 3%.

If you are under the age of 22 you won’t be automatically enrolled, but as long as you earn a minimum of £6,240 a year, you have the right to opt into the scheme and your employer has to make the same contributions as to those over the age of 22. If you earn less than £6,240 per year you can still request access to save into a pension, and your employer has to make arrangements for you do to this, however they are not required to contribute as well.

Along with a workplace pension, there are also other ways to start saving for your retirement. These include setting up a personal pension, saving into a high interest savings account or ISA – the Lifetime ISA can be particularly appropriate for pension saving – and making investments. The right option will depend on your individual needs and circumstances, including the amount of money you have spare to save each month and when you are planning to retire, which is why you may wish to speak to an independent financial adviser before you start your pension plan.

Due to the amount of time your investments have to develop, your 20s is the ideal time to invest money for your retirement. It must be stated that any type of investment is risky and no matter where you invest there is always the possibility of losing money. It is for this reason that you should consider any investments you make carefully and ideally get advice from an independent financial adviser before going ahead.

There are a number of popular ways to invest for your retirement, but one of the more traditional retirement investments – aside from a pension – is property. Even if you are currently saving up for a deposit for your first home you can consider this an investment for your retirement, as by joining the property ladder in your 20s it will give you plenty of time to pay off your mortgage, so that when you retire you can use your home as an asset to help increase your retirement income.

If you’re one of the many people who have not started saving for a pension when you turn 30, fear not – your 30s is a common time to start thinking about putting money away so that you can enjoy a comfortable retirement.

The younger you start a pension the better. You can put less in each month than if you start later to achieve the same size pot, and your savings will have a longer time to grow. While starting a pension in your 20s is ideal, fortunately at 30 you’re still young enough to make significant retirement savings, but only if you start making sensible pension choices now.

Your thirties is typically the decade in which you’ll get married, have children and buy a home, if you haven’t already done so. This shows that life in your 30s is a busy time, with a lot of your money being spent on weddings, house deposits and your offspring. Yet it’s also a time when you tend to be more established in your career and will (hopefully) be earning more than in your 20s, and you’re also less likely to be planning a gap year or having to pay expensive university fees (although you will still likely be paying back your student loan).

While your 30s can be a financially difficult time with many life events vying for whatever little money you have spare each month, and State Pension age may still feel a long way off, it is important to remember that the earlier you start saving for retirement the less you will need to put into a pension each month to build a suitable pot, so you should really start thinking about saving for your retirement now.

This means it’s a good idea to evaluate your finances. You should aim to find out exactly what debts you have, the interest rates you’re being charged on those debts, and how much you are paying off each month. You also need to compare your monthly income to monthly outgoings, along with what you need to put into your savings if you are saving for a house deposit or wedding. Once you know exactly what you have financially coming in and going out each month you can then see what money you have left to put into your retirement savings.

The general advice is as much as possible and as much as you can afford. If you don’t have much money to spare each month, it is better to save even a little and it will still add up in the future. When you do have extra money to spare, for example from a pay rise or as a result of clearing debt, then it is a good idea to increase your regular pension contributions or even make a one-off addition to your pension pot.

It’s also advisable to think about how much retirement income per year or month you would like to have when you retire.

The easiest way to start saving for retirement is to join your workplace pension scheme. You’ll benefit from your employer’s contribution, not to mention Government tax relief, plus you will be able to manage the investments your pension money is invested in – although you won’t get to decide which pension provider the plan is with (this is decided by your employer). At 30 it is likely that you will change jobs a few times before you retire, so remember that your workplace pension stays with you and always keep track of the different pensions you might accumulate over the course of your working life.

If you have the ability to save extra each month (on top of your workplace pension) it is advisable to look at setting up your own form of retirement saving. This can be done through opening a personal pension plan or saving into a high interest rate savings account such as an ISA, or even the Lifetime ISA if you want to benefit from a 25% Government bonus and are certain you won’t need to spend the money on anything other than a first home before retirement.

When planning for your retirement in your 30s it is important to factor in additional assets, and it may be a good time to consider investing your money elsewhere, such as in gold or shares. Given that you’re still some way from retiring, you may be willing to take more risks with your money for the potential of generating greater returns, and for this reason may want to steer away from cash. It could be worth familiarising yourself with investment platforms, but given the riskier nature of investments, make sure to seek advice before you take the plunge.

In your 30s you may also be saving for a deposit for your first house or maybe have just managed to get onto the housing ladder, and your house can be used towards funding your future retirement, such as by downsizing or opting for equity release, either one of which can release a sum of money that you can use to increase your retirement income. Of course, these decisions are still decades away, but it’s worth having an idea of the kind of options available so you know what to prioritise in the present.

While 40 might be a more advanced time of life to be thinking about your retirement plans, it's by no means too late. With the increase in State Pension age you now have another 28 years until you’re eligible for a State Pension, so you’ve still got time to save for a comfortable retirement. They say that life begins at 40 and if you started work at the age of 18, that means you're not even halfway through your working life! That might be a sobering fact, but it does reinforce what we said earlier: it's never too late!

Having said that, starting later obviously isn't as good as starting earlier when it comes to saving for your retirement as it doesn't give your money as long to grow. What it does mean is that you need to be savvy with your retirement savings and make sure any investments will provide you with the best returns, and it’s even more important to seek independent financial advice to make sure you’re maximising your money at this crucial stage of life.

While you will likely have established your career and will be reaching peak salary, life in your 40s can still make it financially difficult to save for your retirement. Normally, those in their 40s have managed to get on the housing ladder, so while this means no longer having to save for a house deposit it does mean having to pay a mortgage each month.

And while you might not have to pay higher rental fees, with many couples putting off having children until later in life you may have childcare costs to pay. Statistically mid-40s is the average age for divorce, so you might not have to be saving for a wedding but going through an expensive divorce instead. Despite this, when you’re in your 40s it is still important to put saving for your retirement high on your priority list, because while it’s not yet too late to save for your retirement, if you leave it too long it soon could be.

If your retirement pot is lacking, it goes without saying that you need to start saving as much as possible. Your 40s is not too late to make substantial retirement savings, but to make sure you have a significant amount in your pot you will have to put more in each month than if you were younger. However, it’s also vital to start thinking about maximising what you already have. This may include considering releasing equity from your home or downsizing in the future, as well as tracking down previously held pension schemes.

Many homeowners choose to increase their retirement income by selling up and moving to a smaller property, which can free up tens or even hundreds of thousands of pounds for their retirement. It can also result in a property that’s easier to move around in, and more economical to run – not to mention clean – than the family home. However, if you are planning to downsize it is important to remember that there is no guarantee that the housing market will work in your favour and you might not make as much as you initially planned from your home.

If your house is not large enough to downsize or you simply want to stay in your home but still need to fund your retirement, then an equity release scheme could be an option. Equity release is a type of financial product where you ‘borrow back’ some of the equity, or cash, you have accumulated in your home. Interest is charged on the amount of equity you have released until the loan is repaid, usually from the sale of your home after your death or when you go into permanent residential care. This option can involve some risk and will reduce the inheritance you leave behind, so when you retire it is a good idea to discuss it with a financial adviser before making a decision.

Yet along with looking at your current assets, you might also be able to increase your retirement funds by tracking down pensions from previous jobs that you’ve forgotten about. Your 40s is the ideal time to take action and find these pensions; read more about how to find a lost pension to get started.

Once you’ve tracked down any pensions make sure to review their value, performance and costs, and consider moving them to another pension scheme if they haven’t been performing well. Professional financial advice could help to maximise your pension pots through consolidation and review of the funds they are invested in, along with reviewing associated management costs.

In terms of investments, there’s still time to make the most of investment platforms and similar investment strategies, though you might like to start being a bit more cautious with your fund picks to limit risk. If you’ve got the means to buy a second property you may even look to buy-to-let as a way to invest for your future, though this of course requires careful consideration of everything from tax implications to additional mortgage costs, and again makes advice essential.