In the early stages of working life, retirement – and the need to save for it – can seem so far in the distance that it can be difficult to seriously consider how to prepare.
As the years go by, salaries (hopefully) increase and calling time on a career becomes more likely, a significant question emerges: how much income do you need to set aside in the present to ensure you can enjoy a comfortable retirement in the future?
The temptation for many is just to keep leveraging their way up the property ladder, throw as much as possible at their company or private pension, and hope for the best.
While that’s a decent strategy to ensure you’ll have a pot to draw from when you retire, the temptation can be just to keep blindly saving without knowing whether it’s safe to live a little.
So, where does that leave us now in the long run-up to retirement?
Isn’t it just as important to enjoy the present as it will be to enjoy the fruits of your hard-earned labour in the future?
Everything you need to know about pensions
‘Starting point should be the end’
Alice Douglass, an independent financial adviser, says the key to finding the right balance during your working life is to plan ahead.
“There isn’t a set of rules because everyone is different, but the starting point should always be the end,” advises Douglass.
“You need to ask yourself what will retirement look like? What will you be doing? How much it will cost?
“And, crucially, how does that relate to your income and expenditure now?”
Pension savings: how much you really need for a comfortable retirement
Work out how much income you need
Sitting down and working out exactly how much income you think you’ll need in retirement is vital.
Adding lump sums may be easier and inheritance may also come into play later in life.
But once you know how much you need to save every month and you’ve got a figure you can stick to; you can then enjoy what’s leftover.
“If you know that you’ve got peace of mind that you’re looking after the future, then you can enjoy the present,” says Douglass.
And it’s not just about piling money into property and pension pots either.
Pensions: why I'm already saving for retirement, aged 23
What investment strategies are available?
Holding a portfolio of investments may be the best long-term strategy.
“Pensions are good in that you get tax relief,” comments Douglass.
“But they do restrict when you can access your money.
“Individual Savings Accounts (ISAs) are good, particularly investment ISAs that can deliver better returns over the long term.
“Bonds, rental income and cash investments are also important.”
Where is your pension invested?
On top of all that, it’s vital to keep track of where your pension pot is being invested.
Douglass recommends reviewing where your money is held as often as you upgrade your mobile phone.
“Lots of people don’t know where their money is being invested,” she says.
“If you haven’t reviewed your pension as recently as you updated your mobile, then maybe you need to look at your pension.
“You need to nurture your pension savings and make sure they’re kept up to date with regulation, legislation, and your personal circumstances.”
As is often the case, planning is the secret to guilt-free spending during your career, but what if you’re coming to the end of your career and you think you’ve saved too much?
If you’ve got an ISA or property you can cash in on those before retirement, and you can take up to 25% of any pension pot as a lump sum tax-free.