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Retirement is often the elephant in the room when we think about our professional careers. As a younger member of the workforce, the concept of retirement might seem like a distant and even irrelevant thing to you. However, the present cost-of-living crisis and its impact on older citizens is a crucial lesson in the importance of later life planning.
With rampant inflation effectively reducing the spending power of the pound, the retirement pots of today’s pension-age Brits do not carry the same weight they once did. This is an inevitability and one that the triple lock aims to mitigate. But with economics an unpredictable dark art, it can be difficult to know exactly how to approach saving for later life. Is it too early to think about retirement, and how should you be thinking about it?
Thinking About Early Retirement
State and Private Pensions
First, it is important to understand the meat of any average employee’s retirement possibilities: their pension plans. Every UK citizen who has at least a ten-year record of paying National Insurance contributions is eligible for the State Pension. The full State Pension is, at present, a little over £200 per week, paid every four weeks to those over the State Pension age threshold.
Meanwhile, salaried workers will have a private pension plan through their employer, wherein part of their wages are sequestered away to their pension pot each month – and, to some extent, matched with an employer contribution. These plans naturally differ from employer to employer and from contract to contract; freelance workers are also able to choose their own private pension plan.
Saving and Investing
But pension pots alone are not necessarily enough to get by on. This is particularly true for those with a small private pension pot or no private or employer pension whatsoever. The State Pension is enough for staples but cannot uphold a comfortable standard of living without its recipient already having assets or savings.
The best way for someone to save for the long term is to seek out lower-risk savings options with high yields. Bonds are a popular form of saving in this regard, offering fixed and high-interest rates in return for limited access to the money placed in them.
In a similar regard, investments are seen as a wise move for those planning their retirement. Investments via global index funds or buying premium bonds allow money invested to grow alongside the markets while largely protected from the risk of individual business failures. You may also invest in real estate if you don’t want to take any risks.
Your Personal Plan
The short answer to the question ‘Is it too early to think about retirement?’ is ‘no’. The sooner you start down the path of financial planning for retirement, the better your situation will be at retirement age. The effects of compound interest on savings are dramatically higher for those who start saving earlier. With this in mind, you should put some time aside to think about what you need from your retirement. What will your standard of living be, and how much will you need to remain comfortable within that standard?