IN THE BACK
/ PLATFORMS /
It’s tough
these days to
put enough
money into
your retirement
savings account
FROM LITTLE
ACORNS…
TIP 2: INCREASE
CONTRIBUTIONS
EVERY YEAR
The most obvious – but often
overlooked – method of
increasing your retirement pot
is to raise the amount you invest
every year. Let’s look at two
scenarios: the first is based on a 30
year old who starts by investing
£240 per month and increases
it by 2.5 per cent a year; in the
second scenario, they increase it
by 5 per cent each year.
In reality, you can’t keep putting
up your pension fund by 5 per
cent each and every year, but
any increase – whatever you can
afford – makes a big difference.
Example 1: 30 year old, £240
per month (£2,880 a year), 2.5 per
cent increase in contributions a
year over 37 years.
We continue to use the £8 a
day, £240 per month saved from
not having a beer and a premium
Making a few small changes to your saving habits can have a big
impact on your pension pot, writes John Blowers
I
may be teaching my
grandmother to suck
eggs, but there are a few
simple steps to take
that can either produce
a larger income in retirement or
allow the option of stopping work
earlier on, without putting too
much pressure on your finances
earlier in life.
It’s tough in Britain these days
to put enough money into your
retirement savings account, what
with soaring property prices,
expensive children, lacklustre
growth – in fact a myriad of calls on
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your money in the here and now.
However, it is vital to ensure you
have a retirement plan, as the state
pension is not going to offer you
the lifestyle you’ll be hankering for
when you hang up your boots.
TIP 1: START EARLY
Everyone says it and in your heart,
you know it’s true, but starting a
pension early makes a massive
difference to how wealthy you will
be in retirement.
A recent Trustnet Direct client
survey found the biggest single
regret among older respondents was
not starting to invest earlier. Yes, a
deposit for a home will always seem
more important, but if you think
about it, there are always small
savings to be made that can translate
into big pots of money at retirement.
A beer and a coffee less a
day could result in a £180,000
retirement pot. How? Investing the
£8 a day you would have spent on
the drinks means you are putting an
extra £240 a month towards your
pension. If you start at 30 and retire
at 67, that will grow (at an average
of 5 per cent growth per annum)
into a pot of £179,828.21.
trustnetdirect.com
trustnetdirect.com
coffee every day for a 30 year old
planning to retire at 67 years old.
By increasing contributions
by 2.5 per cent each and every
year, the forecast pension pot
would grow from £179,828.21 to a
whopping £466,744.53.
We assume that your
investments grow on average by 5
per cent a year in this example.
Example 2: 30 year old, £240 per
month (£2,880 a year), 5 per cent
increase in contributions a year
over 37 years.
With an annual contribution
increase of 5 per cent a year and
using the same assumptions
as above, the pension pot at
retirement would rise to a
staggering £690,902.43.
For the record, by increasing
your pension contributions by 5
per cent a year over the 37-year
period, you would be putting
in £1,532.51 in the final month
before retirement.
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