As we clock up the years, and grey hair starts to appear, thoughts can turn to how our long-term future looks. A retirement with long holidays and spoiling the grandkids sounds fantastic, but what if you’ve not managed to build any savings to fund it yet? Is it ever too late to start saving?
You might think it’s futile to start a savings account or pension fund in your fifties, but having a little something set aside, rather than nothing, will be a help. Imagine your final day at work before you retire; walking out knowing you pulled a nest egg together to look after yourself – it’s a great achievement.
So you can be confident in your choice to get saving, no matter your age, we’re going to look at:
- Government savings options.
- Ways to save privately.
- How to get the most out of your savings.
What are my saving options through the Government?
Everyone who’s worked in the UK gets a state pension. It depends on your age which type you’ll get. If you’re not retired yet and made National Insurance payments before April 2016, and make contributions for at least ten years, you’ll get a pension based on how much you’ve paid in.
If you’ve had some years of unemployment, been out of the workforce to care for your family, or lived outside the UK for a few years, you can still choose to “top-up” your contributions to your state pension. Since the government provides and guarantees the state pension, you can be sure that anything extra you pay in NI will be safe.
Topping up your state pension is an excellent place to start if you’re getting older and starting to think seriously about your financial future. You can even choose not to claim your state pension as you hit your eligible age, which means your payments will be a little higher when you do take it – extra money without having to pay any more!
Starting pensions, savings, and investments later in life
Once you’ve dealt with your state pension, you’ve still got lots of options open to get your savings started in your fifties, or even in your sixties. We’ll cover the basics that are available to you, but be sure to seek financial advice if you’re at all unsure about the best place to put your money.
Anyone with a salary of over £10,000 can join a workplace pension. This is where your employer pays a percentage of your salary into an investment scheme on your behalf. On top of that, you can choose to add a further portion of your salary to your pension pot. When you retire, you’ll get a monthly income based on what’s been paid in your name over the years.
For whatever reason, you may have said “no” to your workplace pension when it was offered. That’s ok, as you can still opt-in at any time. Give your HR or payroll department a call to ask about it.
Your company can pay in between 3 – 10% of your annual income and you add further contributions, too. Your contributions to the scheme come out of your pay packet before it’s taxed, so you’ll pay less tax, too. Be sure that you choose a manageable amount, even if you’re in a rush to build up a pension because you started late.
When you’re self-employed, there’s no boss to contribute to your pension. Having spent your life building up your business and your reputation, as you get older, it’s time to start looking at your pension options.
You can find a pension company, or talk to a financial adviser to help choose one and make payments to it direct. You have two choices:
- Monthly contributions can be made if you’re still working and want to squirrel away money regularly.
- One-off payments let you hand over a lump sum to a pension company in return for a regular monthly income, useful if you’ve sold an investment property for example.
There are tax benefits to having a private pension which you should chat to an accountant about so you get the best value for money.
ISAs and other savings accounts
After you’ve got your pensions sorted, you might still want to put a bit by, knowing you can get your hands on it when a rainy day comes. In the UK, you can save up to £20,000 in the 2020/21 tax year without paying tax on the interest you earn. To get this benefit, you need to put your cash into Individual Savings Accounts, known as ISAs.
Once you’re over 40, savings with an ISA can be done in three ways:
- A Cash ISA is a simple savings account where your money sits and earns interest, paid by the bank. Lots of different types of account are available, where you can pay in monthly, put in a lump sum, and you can either tie it up or get access to it quickly.
- A Stocks and Shares ISA sees your money be used to invest in stocks and shares, where you can earn or lose money. Again, you can pay in monthly or in a lump sum. Be sure you’re aware of and comfortable with the level of risk of your investments. They can go up as well as down.
- An Innovative Finance ISA is an account where you can put your money and have an agent or fund lend it out to people. You could lose your money if borrowers default, which might feel risky as you get older.
You can spread your annual allowance across each type of ISA so you can choose a balance that’s suitable for you. The allowance will renew each year, and the government can change it, too.
Other savings accounts
With pensions taken care of and ISAs filled with your allowance, if you've still got cash to save there are hundreds of different savings accounts out there. You can open most of them, no matter your age.
You’ll have options for lump sum or regular savings, fixed terms or instant access, and the longer you leave the money deposited, the higher the interest rate will be, usually. Banks, credit unions, building societies, National Savings and Investments, will welcome your money even if you’re only a few years off retiring.
Make a plan
It’s fine knowing all of this information, but what’s the best way to get started?
The first thing you should consider looking at is your debt. Apart from your mortgage, if you’ve got loans and credit cards, their interest rates will be much higher than anything you’ll earn with savings, so get them paid off first. The next step is to organise your pension plan; it’s tax-efficient and will give you a guaranteed income as you get older. Finally, get ISAs then other savings sorted with any additional spare cash you've got.
Chris Irwin, director of savings at Yorkshire Building Society, told Pension Times: “Saving money towards retirement can sometimes be an afterthought, with essentials or the nicer things in life taking priority, but starting to build a healthy savings pot doesn’t have to be difficult.
“For those that don’t currently save money regularly, it can be daunting to know how or where to start but taking action at any age provides an opportunity to set financial goals for the future.
“Take a close look at your incomings and outgoings to increase awareness of your financial situation, and from there, look at how you could make small changes to the way you spend money, and consider what proportion of income you could divert to saving, no matter how small.
“Whether you’re saving for retirement, a rainy day, or for a specific purchase, highlighting your savings ambitions and making a plan to work towards them can help make them more achievable.
“It doesn’t matter how you choose to go about it, the sooner you start saving the bigger the difference in the long-term. Above all, little and often saving is better than no savings at all.”
When looking into all of this, understand the risk you're prepared to take with your money. You can lose money on anything related to the stock market or not covered by the Financial Services Compensation Scheme.
It’s daunting to start to take stock of your finances as you get older. Don’t think about people who’ve been saving since their twenties; focus on the money you have available and how you can make sure it’ll work for you as your retirement age approaches, and you start to consider your future life of leisure.