20 vs 30: The ten-year window that can make all the difference.

March 28, 2023

20 vs 30: The ten-year window that can make all the difference.

Make the best of it

Retirement may seem like a long way off, but the earlier you start saving for it, the more time you have to build a nest egg that will sustain you in your later years. In this blog post, we'll explore why starting to save for your pension at 20 instead of 30 can make a significant difference in the amount of money you'll have available to you in retirement. 

The winning formula

The most significant advantage of starting to save for your pension at 20 is the power of compound interest. By starting your pension investing £100 per month and thereafter increasing your contribution by £100 every 5 years, with a lifetime cap of £700 pm as from age 50, and assuming an annual return of 8% (6.5% net of fees) on a high-risk portfolio, a 20-year-old will have approximately £963,945 by the time they reach retirement age at 65. On the other hand, someone who starts saving for an equivalent pension at age 30 will have approximately £449,207 by the time they reach retirement age at 65. That's a difference of £514,738!

Sensible risk approach

Starting early also gives you more flexibility in terms of risk tolerance. In your younger years, you have more time to ride out market fluctuations and recover from any losses. A high-risk portfolio may generate higher returns over the long-term, but it also carries the potential for larger losses in the short-term. By starting early, you have more time to recover from any short-term losses before retirement age and take advantage of long-term gains.

Nothing like a good plan

Starting to save for your pension at an early age also gives you more control over your financial future. By starting early, you can plan for retirement with peace of mind knowing you have a solid savings plan in place.

Reap tax benefits

It's also worth noting that starting early can help you take advantage of government tax relief over more years. For example, if your income is taxed on the Gross Income Basis, up to a maximum of £1,500 per year of assessable income won’t be taxed, assuming you contribute this amount or more into a pension plan. If you start saving at 20, you'll be able to take advantage of this incentive for an extra 10 years, so £15,000 of your earned income would not be taxed.

Let your pension investments work for you

While it's never too late to start saving for your pension, starting early can make a significant difference in the amount of money you'll have available to you in retirement. The benefit of compound interest over a further 10 years makes it a smart financial decision, and the flexibility of being able to start and stop or amend monthly contributions gives you the reassurance that you can never make the error of overcommitting. It's important to consider your risk tolerance, financial goals, and overall investment strategy before making any decisions. It's important to consult a financial adviser before making any investment decisions, or opt for our range of ready- made model portfolios that make it simple to start saving into a pension. 

Be smart – start your retirement plan

In conclusion, starting to save for your pension at 20 instead of 30 can double the amount of money available to you in retirement.

 

This advertisement does not constitute investment advice. As with all investments, your capital is at risk. Your money could go up or down and you should always seek professional advice in regard to the suitability of any investment. Abacus Pension Trustees Limited is authorised by the Financial Services Commission number 1275B."

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