You might have thoughts on what retirement could look like but these dreams feel far away when you have other priorities. Retirement comes in to focus when you hit your 30s and 40s and yet many of us put off planning for it. We look at the science behind why so you can encourage yourself to do the right thing and get planning.
Read: Ultimate Guide To Retirement PlanningDo you worry about the future because you know you haven’t planned for it? Perhaps you are carrying the weight of retirement on your shoulders and all the paperwork that comes with it. Many of us bury our heads in the sand because we think we are so far behind with savings it is beyond repair. But if we can understand why we put off retirement planning it opens are eyes up to the opportunities involved with getting started. We take a look at:
– The science behind why we don’t get round to planning for the future
– Benefits of starting early because of the magic of compound interest
– The importance of understanding the personal facts of your monetary situation
– Learning to look forward to the future instead of worrying about it
You might get the importance of having a stable income after we stop work but thanks to an element of human psychology called ‘hyperbolic discounting’, putting away money for the future is difficult to digest. We are hard-wired to value £1 in our pocket today over £1 in the future. Our thoughts of “I can’t find time” or “I’ll sort it tomorrow” need to be banished in favour of “I’ll start my planning today” because let’s face it, we aren’t getting younger, the retirement age is rising and we can’t rely on the state pension. We have to take matters in to our own hands.
Speak to anyone nearing retirement and they will say “I wish I started saving earlier”. Saving becomes difficult as you acquire more expenses but the other reason to save early is compound interest. Even when you start off with a small investment, it earns interest. Then the investment and the interest earnt, earns even more interest. The younger you start the more your wealth snowballs. Let’s see the maths in it. If someone started saving £100 a month from 20 to 30 years old this would be £1,200 a year. This total amount of £12,000, with a standard annual growth of 5%, will amount to £15,848.14 by year 29. This nest egg alone would be worth £278,227.40 by the time that person reached 70. In comparison, someone starting to save from the age of 40 would have to contribute double, £200 a month, £2,400 a year until the age of 77 to get a similar value of £271,428.06. That is the magic of compound interest that you are missing out on.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
Worrying about retirement and doing NOTHING is the biggest mistake you can make, yet you aren’t alone. People get in to this conundrum because they lack the facts. The unknown makes us nervous and you might feel unsure how much money you have and whether it will be enough. Don’t “bury your head in the sand” or put off speaking to a professional because of that confusion. If you’re thinking “I’ve got nothing in place for my retirement”, don’t just hope for something to fall into place as if by magic. Now is the time to pick up the phone and talk to a professional investment and pension planner. You may have options that you’ve not yet considered that will let you relax a little about your retirement.
If you’ve moved around a little and had a few jobs, you might have multiple workplace pensions. You can get help from a financial adviser to amalgamate separate pensions and the outcomes can be very effective in getting your retirement planning on track. As you get older we can also look at linking in retirement planning with inheritance tax and multi-generational investment strategies. It’s all part of making retirement planning worry-free and enjoyable for you, taking the stress of planning and all the admin that comes with it away from you. This means you can spend your time on your family, handing out with friends or hobbies. Then when you do retire you can celebrate in style knowing that your financial adviser is proactively managing your financial situation.
If you want to find out more about planning for retirement read our free Ultimate Guide to Retirement Planning
Author: Simon Jones, Chartered Financial Planner
Date: 21st May 2025
Approver Quilter Financial Limited TBC
