With the Queen celebrating her 90th birthday this week, many of us could be forgiven for wondering whether we too will still be working into our tenth (!) decades.
Retirement ages continue to rise
It’s widely accepted that retirement ages are going to rise, perhaps quite steeply, over the next few decades – for example, people in their 30s and 40s today won’t get their state pension until they are near or possibly even past their 70th birthdays. But whether or not they’ll be able to stop working before then really depends on what kind of monetary provision they can make for themselves.
Building a private pension
It’s becoming increasingly important to ensure you have a decent private pension if you want to have a long and comfortable retirement – after all, the state pension today is worth around just £8,000 a year, and there is every chance it will become less generous over time as government coffers come under more and more pressure.
Key steps for getting your retirement finances in shape
1. Understand the power of compound interest
When you save for a long period of time, you’ll get significant benefits from compound interest or compound growth. This refers to the fact that any gains you make in year one, say, will themselves grow in year two and beyond – in other words, you start to earn interest on your interest, not just on your initial capital.
For example, if you started by lending £1,000 in Zopa Classic, you would earn around £45 interest in the year. The next year you would start with £1,045 and earn around £47 interest. This means the next year you would earn interest on £1,092, and so on. Find out more about lending with Zopa.
Compound growth can have a big impact on amount of money you end up with, and the best way to fully exploit this phenomenon is by starting to put money aside as early as you can.
2. Get your calculator out
There’s no point burying your head in the sand when it comes to planning for retirement, so it’s important to understand how much money you need to save, invest or lend to generate the right returns.
There are numerous pension calculators online – the government-backed Money Advice Service has one – which can show you how much you need to save based on your target income in retirement, your age and other factors such as expected growth rates.
Chances are you’ll need to find more money to put aside, but at least you’ll avoid a nasty shock further down the line.
3. Go for growth
The further you are from retirement, the more you should consider high-risk and potentially high-growth options for your money. Over longer periods, higher-risk investments tend to outperform their rivals and the extra time gives you more chance to ride out any early losses.
4. Be realistic about property
A lot of people expect or at least hope that the property they own will go at least some of the way towards paying for their old age. With house prices continuing to rise around the UK, this isn’t a surprising attitude.
But it can be very difficult to turn your home into cash, especially considering you will still need somewhere to live. Downsizing can certainly free up some equity, but moving home is an expensive business and there are no guarantees that property prices will continue on their upward trajectory indefinitely.
Find out more about how lending with Zopa could help you put aside money for your pension.