How To Plan For Your Retirement Now

When you’re busy building your career in your twenties and thirties, it can be tempting to push thoughts of retirement planning aside in favour of more pressing financial concerns.

But if you tend to think of your retirement funds as a ‘future you’ problem, it might be worth reconsidering. The average woman in her twenties is on course to have £100,000 less in her pension pot at retirement than a man of the same age, according to 2021 research by Scottish Widows.

The Stack World spoke to Lisa Conway-Hughes, a financial advisor and founder of the Ladies Finance Club, about the steps that women can be taking at any age to set themselves up for their later years, whether you’re launching your own business or climbing the corporate ladder.

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If you’re in the early stages of growing a business, it might be tempting to put off starting your pension until you feel more financially stable – but it’s important to override that instinct. “The financial planning that you do today will be the most important planning you ever do”, says Lisa.

Ask yourself: would you rather have £1 million today or a single penny that doubles every day for a month? While the £1 million upfront might look tempting, if you accepted the single penny, by the end of thirty days you would have over £5 million. That’s the power of compounding.

“The longer your money has to grow, the more impact it will have”, says Lisa.

Remember, whatever you want to spend in retirement, you need 25 times that amount saved as a lump sum (excluding assets, like your home). “It might sound scary but it’s achievable if you get started as soon as possible”, Lisa says. “Even if you can only afford to save small amounts today, just do it.”

Embrace automation

Does the thought of sitting in front of a spreadsheet trigger cold sweats? Make automation your financial best friend.

Firstly, as a business owner, give yourself some stability by paying yourself a regular set income. “Treat yourself as an employee of your own business, who needs a pension, insurance and a regular salary”, advises Lisa. “That income might be lower than you’d like at first, but you can always pay yourself a bonus.”

Then, for the day you’re paid, set up automated payments into various ‘pots’ (most banks now have this easily available). “As well as savings, have a pot for bills, food, and any other monthly costs. Then a pot for annual bills like car insurance, house insurance and kids club fees, and other costs like birthdays and holidays”, says Lisa. Sorting your finances in this way takes the guilt out of expenditure. “You can pay for holidays and other luxuries from your pre-saved annual pot, knowing the money is there for that purpose.”

Once you’ve calculated how much you need to add to each pot, you simply set up the standing orders or direct debits, and leave your account alone. As Lisa says, “Automation helps you to become good at managing your money without doing anything.”

Get strategic with your savings

When approaching your savings, think short, medium and long-term. Work towards having three to six months’ worth of cash in the bank. “If you’re self-employed this will help with inevitable peaks and troughs”, says Lisa. “But it also means that, when you need urgent funds, you’re not drawing on any investments at a time when the markets are low.”

Your pension is your long-term pot, while your medium-term pot is for your financial goals for the next five to fifteen years, whether that’s a house deposit or paying school fees.

Calculating your pension payments

When working out how much to put away each month, a good rule of thumb is to save half your age as a percentage of your income. If you’re 20, save 10%; if you’re 30, save 15%, and so on. While this isn’t an absolute, it can help you determine whether you’re undersaving. If you’re a business owner, put a note in your diary to analyse your business performance each quarter, and adjust your pension payments accordingly.

Finally, even if you’re currently not working or are a low earner relying on a high-earning partner, it is still important to have a pension. If you earn £3,600 or less a year, or you don't earn anything at all, you can get tax relief on your pension contributions up to £3,600 every year. “Paying into a pension will make you more tax efficient in retirement as a couple, as it avoids your partner shouldering the tax burden”, says Lisa.

Diversify your savings

Although pensions offer great tax relief, it can be stressful to move money to a restricted pot when you’re trying to build a business. That’s where ISAs come in handy. “If you’re nervous about locking your money in a pension fund, you can put money in an ISA that is earmarked for retirement, so that you can always draw on it earlier if you need it”, says Lisa. You can also transfer those ISA funds into a pension later on.

There is an additional benefit to diversifying your saving pots: legally reducing your tax payments in retirement. “Say you wanted £60,000 a year to live on”, says Lisa. “If you took £50,000 out of your pension and the remaining £10,000 out of your ISA, you’d remain as a basic rate taxpayer, whereas if you took all the money out of your pension, you’d pay 40% tax on the top £10,000.”

Invest wisely

Millennials and Gen Z are investing at a higher rate than any preceding generation, spurred on by crowdfunding platforms and apps that lower the barriers to entry. But while investing is an important step in achieving financial independence, it’s important to familiarise yourself with the risks involved and avoid unregulated opportunities.

“Remember that you don’t get rich overnight”, says Lisa. “You get rich by doing the right things, regularly.”