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Nick Huber
November 2016.
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How can you balance saving for your retirement with other big life goals?
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There’s a 50-30-20 rule of thumb, which is quite popular in the US. Dave Ramsey - a US businessman and author - talks about allocating half of your take-home pay each month towards necessities and then 30 percent towards lifestyle choices, things like hobbies or your gym membership, and 20 percent towards your future financial goals − paying debts and saving for retirement. 

Rising property prices mean that young people have to put off becoming property owners and moving out of their parents’ home and getting married and starting families. Also, they’re coming out of university with massive debts, £40,000 or £50,000 in some cases. All these things are going to delay retirement because people are having to prioritise repayment of debt first and then savings for the future after that. Even if they’re not on the property ladder they’re probably paying rent which is as high if not higher than mortgage payments. 

As well as a personal pension pot, people tend to have a state pension income, although for young people today there’s a fairly high likelihood that there won’t be a state pension when they retire, or at least not in the same form as today. The people we see who get to retirement in the best financial shape tend to have multiple sources of income, such as income from other properties, not just a pension pot. 

"for young people today there’s a fairly high likelihood that there won’t be a state pension when they retire, or at least not in the same form as today."

There’s now more choice about the types of pension you can have. Most people in work will now be automatically enrolled into their employer’s workplace pension. People who are self-employed will have to make choices about whether they have a personal pension, a stakeholder pension [a type of personal pension introduced by the government that has a cap on charges you pay your pension provider], a self-invested personal pension (SIPP), or from next April they can use a lifetime ISA to save for retirement. 

The thing to do when you’re young is not over-complicate things. Keep it simple. Get the habit of paying part of your salary into a pension each month. If your employer offers a pension, pay into that. If not, go online and find the cheapest stakeholder pension, which has low charges and a decent investment fund range. The biggest impact on how much you have in retirement is how much you put into savings. It’s not pension fund performance.