What does retirement mean to you?
Do you really want to work until you are 70?
A villa in the sun on a palm-fringed beach? A round the world trip to see the seven wonders? Chilling out with friends and family and playing golf when you want? The freedom to pursue interests, hobbies, voluntary work that you never had time for when you were working?
I bet it doesn’t mean trudging into the office every weekday, sitting in traffic jams, squeezed onto the tube, face pressed against the armpit of someone you’ve only just met.
Yet that, my friends, is what most people seem to think they’ll be doing for most of the rest of their active life. A report from Friends Provident suggests a significant proportion of Britons believe they will have to work until they are 70. London and Birmingham are the cities with the lowest rates of pension savings in the country.
Firstly, it is great that people are being realistic about the prospects of state support when today’s working generation are looking to retire. If I gaze into Madame Marianne’s Crystal Ball I see in the future a state pension barely keeping pace with inflation, or worse still, means-tested, and a decline in property prices which lasts a decade.
So here’s the strongest argument for a bit of deferred gratification now, so that you can at least start putting some regular cash away in a pension or share savings account that will beat inflation and give you more than beans on toast in your retirement.
When you’re in your 40s or 50s you are still pretty physically fit and this continues into your 60s so long as you take care of yourself and keep your mind and body active.
However, my observations of those close to me in their 70s demonstrate that this is the decade when you start to feel your age and your physical limitations. Do you really want to be still working then? Sorry to be depressing, but time is running out, folks.
So seeing as it is still grey and raining here, and I think I’ve been depressing enough, here’s the solution: get saving now. It doesn’t have to be loads: maybe £20 or £50 a month into a share-based savings account.
Regular savings benefit from what Albert Einstein called “the most powerful force in the universe”, that is, Compound Interest. It works the same way whether you are saving or borrowing – it simply amplifies what you own or owe. By ensuring compound interest is working FOR you, rather than against you, your savings will grow passively.
Even though we’ve had a volatile time in the stockmarkets recently, equities are still the only proven inflation-beating investment vehicle, aside from property, and as I argued in one of my past blogs, this is no time to start filling your boots with UK property.
9. November 2010 at 12:20 pm
Couldn’t agree more – this post should be compulsory reading for all women! It’s bonkers to spend money making ourselves look lovely now when – for little more than the price of a monthly manicure – we could, with compound interest, secure a really comfortable future for ourselves.
Making pension contributions automatic (opt-out schemes) will help a lot, for many people it’s simply that they don’t get round to doing anything. Or else they are so confused by choice that they do nothing. And ‘nothing’ is the worst possible course of action!
9. November 2010 at 12:30 pm
Karen you are spot on, as ever. Most people need a fund of around £300,000 to £400,000 to maintain their standard of living in retirement. That’s achievable if you start early and contribute small amounts, but it is such a scary figure that I think people get put off by the prospect. But as you say, anything is better than procrastination.