If, like me, you are a millennial focused on short-term problems like which local café can rustle you up a ‘morning after the night before’ bacon/avocado mish-mash, saving for your retirement is pretty low on your to-do list.
However, kicking this problem into the long grass won’t do you any favours as you get older. Let’s explore some of the facts about retirement saving and a few of the options out there to get yourself on track for your golden years.
First thing’s first: you are not alone. A study by IPSE last year, How to solve the self-employed pensions crisis, found a staggering 69 per cent of self-employed people don’t have a pension – by far the main way people choose to plan for retirement.
The bad news is, the longer you put off saving for retirement, the more catching up you will have to do the closer to retirement age you get. This will be easier for some, more than it is for others, depending on how much you earn each month. But in general, retirement planning is something you should have on your radar.
When I spoke to one person who had been freelancing for 20 years and who had to catch up on lost time not saving, she told me her pension contributions each month were over £2,000 – a scenario best avoided if you can.
If you’re more of a savings traditionalist like most UK retirement savers, a pension may be a good option for you. There are a whole host of providers out there, each with different terms and conditions attached, so you should take the time to consider which one will give you the best value for money.
A key feature of a pension is that it offers a tax-relief, so your contributions are topped up with a bonus by the government, paid for by the tax you would ordinarily pay. To put it simply, if you put £100 of your earnings into a pension it would only cost you £80, with the remaining £20 being reimbursed from the tax relief.
Few people have heard of the Lifetime Individual Savings Account, or LISA for short. The LISA is a special savings account geared towards you saving for one of two purposes at a time: your first home or retirement.
You have to be under 40 to open this account, but the great thing about the LISA is you get a 25 per cent bonus every year on savings up to a maximum of £4,000. That means if you save £4,000 in a year the government will give you a bonus of £1,000, bringing your yearly savings to a tidy £5,000. Not to be sniffed at.
Stocks and shares could be the ticket for anyone wanting to channel their inner Gordon Gekko. There are a number of online platforms you can use to invest as well as brokers who can act on your behalf. While speculation can lead to accumulation, be warned there’s no such thing as a safe bet, and stocks and shares are more at the mercy of a range of factors like the economy, confidence in a company or a company’s performance than with cash savings.
We’ve all heard the phrase ‘safe as houses’. And, given their meteoric rise in value since the 2008 crash, where average house prices went from around £155,000 at their lowest ebb in 2009 to £230,000 in 2018 according the Office for National Statistics, it’s hard to argue against that maxim.
However, house prices, like many things, are subject to factors outside our control, such as another economic downturn or the lack of affordable homes. This is not necessarily something to worry about now, but if you are thinking of using rental income from a property to see you through your retirement, it is something to be wary of.
Which type of investment should you pick? That is up to you and what you think is going to work for you in the long term. A pension might be a more focused way to save for retirement than a LISA, for example, given the temptation to save for your first home as your exclusive or main priority. Houses, stocks and shares may offer higher returns over time but remember they can be affected by unexpected factors. It may even be a good idea to consider a combination of these if you’re able to.
When you next find yourself indulging on a Saturday night, and picking yourself up on a Sunday morning, spare a thought for your future self, and remember, it’s never too late.