It’s a sad fact that there are millions in the UK today who are likely to struggle to make ends meet in their old age, many of whom have no retirement provision other than the State Pension.
Even at today’s £8,767 per year maximum, it’s not the makings of a life of ease. It doesn’t bear thinking about how much it will have eroded (and how old you’ll have to be to qualify) by the time young people today reach retirement age.
Think
Actually, yes, thinking about it is exactly what’s needed, and that’s my first tip. Many younger folk don’t even think about their retirement – it’s an old people‘s thing, and they don’t waste their time while there’s a life to be lived.
I was like that, seeing my grandparents living comfortably on their State Pensions. And my parents were doing fine, with my Dad lining up what would become a reasonable company pension, and their retirements worked out well enough too. Retirement and pensions weren’t things you had to think about – you got old some day and they just happened.
But committing yourself to thinking about your retirement is, I reckon, the most important thing you can do today. Once you’ve taken that step, the rest should follow a lot more easily.
Time
My next tip is about when you should start taking some action. Ideally, now. Or as soon as you possibly can. But it’s never too late.
In 1984, I’d just quit my first job and was moving to a better paid one, and I’d been in the first company’s pension scheme for a short enough period to have a choice of transferring it or cashing it in.
I had so much time ahead of me to worry about my old age, that I took the cash. It came to about £1,000, which was a tasty sum for a young man to suddenly have in 1984. I can’t remember what I spent it on, but today I see it as a wasted opportunity to make better provision for my retirement (which isn’t so far away now).
I don’t know what my new company pension would have made of my £1,000, though it did actually do very well for me in the time I was there. But if I’d put it into shares and earned 6% per year (which is around the FTSE 100‘s long-term average), I’d have an extra £7,700 in my pension pot today.
Shares
That gets me to my third tip, about what investments to use to save for retirement – which is shares in top UK companies. Over the short term, shares can be volatile, and there are periods when they’ll perform badly – and even leave you with losses sometimes.
But the longer your investment period, the lower the overall risk and the bigger the margin by which shares have consistently outperformed other investments. According to a Barclays study, in every 18-year period for the past 120 years, shares have beaten cash savings – often by large amounts.
My favourite investing fact is that £100 invested in the UK stock market in 1945 would be worth £180,000 today, even after inflation.
If you’ve read this far, you’ll have at least followed my first tip. And that’s a great start.
