Many people believe planning for retirement is something to worry about once you hit 50 and can see it on the horizon. However, this misconception can cost you thousands of pounds in lost compound growth and create unnecessary financial stress in later life.
Recent research by Standard Life found that 53% of retirees wish they’d started saving earlier, with 42% regretting not accessing professional advice or guidance about their pensions and retirement. Starting your pension at 25 rather than 35 doesn’t just mean ten extra years of contributions. It could mean thousands more in your final pot.
Yet while starting early provides substantial advantages through the power of compound growth, the good news is that it’s never too late to begin. The key is understanding what steps to take at your current stage of life, and how to maximise your remaining years before retirement.
This article explores the benefits of retirement planning at different ages. It provides practical guidance for each life stage and offers strategies for those who feel they’re starting late.
Whatever your age, you’ll find actionable advice to improve your retirement prospects.
The power of starting early
Compound interest is the savvy saver’s secret weapon, with good reason. It’s the process which sees your investment returns generate their own returns, creating a snowball effect that accelerates your wealth over time. The earlier you start, the more time this snowball has to grow.
Consider the following example. Say you started contributing £100 monthly to your pension at age 25. By 65, assuming 5% annual growth, you’ll have accumulated approximately £153,000, having contributed £48,000. However, if you waited until 35 to start the same £100 monthly contributions, your pot would be worth around only £84,000. That’s £69,000 less in your total pot, even though you contributed only £12,000 less, over 30 years instead of 40.
This ‘time value of money’ principle means that £1 invested in your 20s is worth significantly more than £1 invested in your 40s. Each decade of delay roughly doubles the monthly contribution required to achieve the same retirement pot.
Starting early also reduces financial pressure throughout your working life. Beginning at 25 can help you achieve a comfortable retirement with relatively modest contributions, while starting later might mean you need to save 20%-30% of your income to catch up.
Planning in your 20s: Building the foundation
Your 20s might feel too early for retirement planning when you’re juggling a student loan, rent and establishing your career. However, this decade offers unique opportunities that shouldn’t be missed. The most important step is joining your workplace pension scheme when you start a new job.
Thanks to auto-enrolment, most UK employees are automatically included in a workplace pension, although some opt out, seeing it as an expense they can’t afford. This is a costly mistake. Employer contributions are essentially free money. If your employer matches 3% and you opt out, you’re effectively taking a 3% pay cut.
Even if money is tight, staying in your workplace scheme ensures you’re building pension savings without having to think about it. The contributions come directly from your salary, so you won’t miss the money.
Establishing good financial habits in your 20s sets the pattern for lifelong financial success. Start by understanding where your pension contributions go and how they’re invested. Most workplace schemes default to balanced funds appropriate for your age. But taking time to understand the basics of investment risk and return will serve you well.
Consider setting up additional automatic contributions, even if just £50 monthly. Your 20s offer a crucial advantage: time. With 40+ years until retirement, you can afford to take more investment risk, potentially achieving higher returns. Growth-focused funds that might seem too volatile for older savers could be perfect for maximising your long-term wealth.
Planning in your 30s: Gaining momentum
Your 30s often bring significant life changes – marriage, children and mortgages – that can make retirement planning feel less urgent. However, this decade is crucial for building momentum in your pension savings.
Start by reviewing old workplace pensions from previous jobs. The average person will hold nine jobs during their career and work for six different employers, potentially leaving a trail of smaller pension pots. Consolidating these can reduce fees and make your retirement planning clearer, though check you won’t lose any valuable benefits before transferring.
As your salary increases, resist the temptation to let your lifestyle consume every pay rise. Instead, try to direct at least half of any salary increase to your pension. This painless approach can dramatically boost your retirement savings without affecting your current standard of living.
Your 30s are also the time to think beyond your workplace pension. If you’re earning well and maximising employer contributions, consider opening a SIPP for additional flexibility. Similarly, don’t overlook ISAs. While they lack the upfront tax relief that pensions provide, they offer more accessibility and tax-free withdrawals in retirement.
Your risk tolerance might decrease as your family responsibilities grow, but don’t become too conservative too early. With 25-35 years until retirement, you can still weather market volatility in pursuit of higher returns.
So, start defining your retirement vision more clearly. Do you want to retire early? Travel extensively? Support grandchildren through university?
These goals will shape how much you need to save.
Planning in your 40s: Accelerating your savings
Your 40s typically represent your peak earning years, offering the best opportunity to accelerate your retirement savings. With your children becoming more independent and your mortgage potentially shrinking, you might have more disposable income to direct towards your pension.
If you’re behind with your retirement savings, your 40s offer powerful catch-up opportunities.
You should consider making additional voluntary contributions (AVCs) to your workplace scheme or increasing your regular contributions significantly. Some employers offer salary sacrifice arrangements, where you exchange salary for pension contributions, saving both you and your employer National Insurance.
And if you’re ahead on your mortgage payments, consider whether directing extra funds to your pension might provide better long-term returns, especially with the tax relief available.
Your 40s are the time to start calculating your retirement income needs. Create a detailed retirement budget based on your expected lifestyle, factoring in whether you’ll have paid off your mortgage and how your spending patterns might change.
Consider when you realistically want to retire. While the State Pension age is currently 66-68, depending on your birth year, you can access private pensions from 55 (rising to 57 in 2028). Early retirement requires a larger pension pot, so factor this into your planning.
And don’t neglect protection. Life insurance is essential if you have dependents, while income protection could preserve your retirement plans if illness strikes before you’ve finished saving.
Planning in your 50s and beyond: The final push
Your 50s are your final decade to save before you can access your pension. This period requires careful balance between maximising growth and protecting what you’ve built.
Your investment strategy should gradually shift towards lower risk as your retirement approaches.
Understanding your pension access options is also crucial. From age 55 (57 from 2028), you can take 25% of your pension tax-free, with the remainder subject to Income Tax. Some people rush to access this, but leaving your pension(s) untouched allows continued tax-free growth. It’s a tricky balance, so take advice from your financial planner.
The choice between annuities and drawdown requires careful consideration. Annuities provide guaranteed income for life but lack flexibility and protection against inflation. Drawdown offers more control and potential for growth, but requires ongoing management and carries the risk of running out of money.
Many retirees find combining both works well, using an annuity to cover their essential expenses while keeping the remainder in drawdown for discretionary spending.
Phased retirement, gradually reducing your work hours while starting to draw your pension, can provide a smoother transition, both financially and psychologically.
The decisions you make about accessing your pension can have decades-long implications, so getting expert guidance is recommended.
It’s never too late
If you’re reading this in your 40s, 50s or even 60s without significant pension savings, don’t despair. While you may have missed out on decades of compound growth, you can still save enough for a meaningful retirement.
Take immediate action by maximising any employer pension contributions available. If you’re 50 with no pension, contributing 20% of a £40,000 salary could still accumulate over £150,000 by age 67. Combined with the State Pension, this could provide a modest but secure retirement.
Professional advice is even more valuable for late starters. An adviser can help you understand all available options, from pension consolidation to tax planning strategies that maximise your remaining years of saving.
Consider practical adjustments like planning to work part-time in early retirement or downsizing your home to release equity.
Many people successfully build financial security in retirement despite starting late, through a combination of aggressive saving, realistic expectations and flexible planning.
The key is starting immediately rather than assuming it’s too late. Every year of delay makes the challenge harder, but every year of saving makes a comfortable retirement more achievable.
How can Glenrose help?
The best age to start planning for retirement is always now, regardless of whether you’re 22 or 62. While those starting in their 20s enjoy the tremendous advantage of compound growth over four decades, every year of saving can improve your retirement prospects.
Regular reviews and adjustments will ensure your retirement plan evolves with your circumstances.
Whatever your age or circumstances, professional guidance can help optimise your retirement planning.
At Glenrose, we work with clients at every life stage, from young professionals taking their first career steps to those approaching retirement needing to maximise their pension pots. Our experienced advisers provide personalised strategies that consider your unique circumstances, goals, and timeline. We’ll help you understand your options and create a clear path to the retirement you deserve. Book a consultation today to discuss your retirement planning needs.