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Pension Planning in Your 20s, 30s and 40s

By: Kevin Dowling BA (IMC) - Updated: 26 Nov 2010 | comments*Discuss
Saving Pension Planning Retirement

It is all too easy to keep putting off saving for your retirement. But the sooner you start paying money into a pension, the better. The earlier you get into the savings habit, the greater your pension pot will be, and you’ll have one less thing to worry about as you get older.

Pension Planning in your Twenties

For most people in their twenties, the need to save for retirement is the last thing on their minds. That’s because most people are just starting out in their careers, and the thought of setting money aside for when they have reached the end of their working life is just too far away to contemplate. Also, during your twenties your earning power is as limited as your life experience, and you may find that most of your salary is taken up with the cost of living and repaying student debt.

However, as boring as it may sound, this is the ideal time to start thinking about your pension. By investing a small regular amount over a longer time period you give yourself the best chance of building up a substantial pension pot by the time you reach retirement age. You might think about investing a significant proportion of your savings into equities, because the stockmarket offers investors with a long-term investing horizon the best potential return.

Pension Planning in your Thirties

By the time you reach your thirties, there’s an increasing likelihood that you will already have started to consider setting some money aside for your retirement. This is because as we get older, our needs change and we need to plan accordingly. We get married, buy a home and have children. All of these cost money.

However, people in their thirties are better placed to take these hurdles in their stride. They start to develop the career they nurtured in their twenties and as a result, their earnings potential can increase rapidly.

Most companies also actively encourage you to start investing into a company pension scheme, so saving for the future starts to become more of a habit. Plus, after a decade or more of working hard, the prospect of retirement becomes a lot more appealing and far less distant!

Pension Planning in your Forties

By the time you reach your forties, you’ve reached the halfway point. There’s the probability that you have worked for over twenty years of your life, and you may have another twenty years of work still ahead of you. Hopefully your pension pot will be looking healthy at this stage in your life, although there’s nothing wrong with re-examining your savings goals to make sure that you will have enough saved to pay for the lifestyle you want after retirement.

You might also want to think about changing your asset allocation, and shift some of your more high risk high growth investments into more cautious, steady, income generating assets, such as government bonds, corporate bonds and cash.

If you feel that you haven’t made enough provision for your retirement, then you don’t have much time to waste. You should think seriously about what you will need to do in order to increase your pension pot, and make sure that the projected returns on your investments will be enough for you to realise your goals. If you don’t take action now, you may find yourself having to put off retirement for a few more years and continue working.

Beyond your Forties

As you move into your fifties and sixties, you should already have a fairly solid idea of when you plan to retire, how much you will need to live on, and the pension pot you should be able to call on. Provided you have invested wisely over the years you should have a pension portfolio consisting primarily of low risk investments that offer a consistent rate of return and good levels of income.

Pension planning may feel like a chore that you should avoid for as long as possible, but the opposite is true. The sooner you start, the less hardship and worry you stand to face in the future. So, if you haven’t started planning for your retirement yet, what are you waiting for?

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