How late is too late to start saving for retirement?

When you’re considering your future and what to do with your money, it’s vital to ensure your financial security will continue into later life, when you’re no longer earning an income. But is it ever too late to start saving?

The answer is no, and this isn’t just a Pollyanna response from a pensions expert.

Why you should save money for retirement

Retirement has changed substantially from what it was for previous generations. It used to be the norm to spend a 30-year career in one profession, often with one or two employers, and for people to stop working entirely once they reached retirement age, which was usually around 60 to 65 years old.

For previous generations, retirement was often seen as the beginning of one’s twilight years, and people expected to spend the rest of their lives winding down. But nowadays, age 60 is not ‘old’, given that many people who are currently in the workforce can expect to live much longer.

The life expectancy calculator from the Office for National Statistics predicts that a man aged 50 today will live to an average age of 84 years old – and they have a one-in-four chance of living to 93. Around one in ten of this cohort reach the age of 97.¹

Life expectancy rises sharply for younger people. A woman aged 30 today has an average life expectancy of 88 and a one-in-ten chance of reaching their 100th birthday.²

With so many years ahead of you, it’s important to work out how you will fund them.

Although some people dream of leaving their job behind and sitting in the sun for the rest of their lives, many people don’t want a ‘hard stop’ to their working life. Instead, ‘retirement’ has become the point when they start phasing out work and incorporating other goals or interests into their lives. For example:

• ‘Retiring’ from their career, taking time off to travel and relax, and then returning to work on a part-time basis.
• Retiring fully from their career and starting a business
• Choosing not to retire but to keep working and accumulating wealth, passing some on to the next generation

Culturally, there’s increasing recognition that work provides benefits other than income - for example, social interaction, routine, challenge, intellectual fulfilment or the ability to pass on skills and knowledge. There’s also financial expediency. Saving enough money to last someone for 30 or 40 years is a bigger challenge than when retirement lasted for ten or twenty years, as with previous generations.

How much should you have in savings before retiring?

It’s difficult to say how much money you need before you stop work, because it really depends on what you want to do.

Many people fund their retirement from a range of sources, including property, Cash ISA savings, Stocks & Shares ISAs, earnings, state pension and private pension pots.

This can be beneficial, because money can be withdrawn from each of these in different ways; for example, ISA savings can often be withdrawn tax free on demand (depending on the type of ISA), pensions allow people to withdraw a tax-free lump sum at retirement age, while income from a rental property may be monthly.

This is also useful because people tend to spend different amounts during different phases of their retirement – for example, a year spent travelling the world is likely to cost more than a year spent working part-time. You may also find your spending falls as you get older.

Why planning is important

It’s not enough to have savings, you also need a plan – and that’s why it’s a good idea to seek financial advice. It’s best to meet with your financial adviser regularly so they can look holistically at your situation and help you gauge:

• At what age could you retire? What kind of lifestyle can you expect to have?
• If you increase your saving, how will that improve your retirement prospects?
• What do you dream of doing? What adjustments could you make to ensure you can achieve them?
• Could you go part-time? Could you take a year off?

Reaching retirement age is not an ending, it’s the start of a new chapter in life. Putting the right plan in place will help ensure you can enjoy the future you want.

It’s never too late to plan for retirement – we can get you on track. Speak to us now.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time.  The value of any tax relief is generally dependent on individual circumstances.

Sources
^1,2Life Expectancy Calculator, Office for National Statistics, accessed 6 July 2022.