Retirement: Would you rather work longer or start saving early?
Filed under: Retirement
The Department for Business emphasised that this change should benefit the economy, as well as the older workers concerned. But what if you don't want to work past 65? Well, it looks like you've got two other choices: save more or start early.
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It seems the important thing is to plan for your retirement years as early as possible. Investment specialists Fidelity International have calculated the benefits of the different options...
Work for longer
I used to work with a bloke whose sole aim in life seemed to be to retire. He could see that golden '65' in front of him and he spent all day, every day, dragging himself towards it. If this is you, working until you're 70 probably isn't something you want to contemplate. However, delaying retirement by five years could put you on a much better financial footing.
For example, according to the Annuity Bureau, a man retiring at 65 - with £100,000 - can expect to buy a single life annuity worth around £6,800 a year, at today's rates. If he buys that annuity when he's 70, however, he may well be able to grow his retirement pot to around £128,000. This would mean he could buy an annuity worth around £10,000 a year - at the higher rate applicable to a man aged 70.
Save more now
For many cash-strapped Brits, saving more in a monthly pension plan doesn't seem very feasible at the moment. But the benefits are certainly tempting. Someone saving £130 a month will end up with a pension pot worth 30% more than someone saving £100 a month, all other things being equal.
In turn, this will buy an annuity worth 30% more on retirement.
Compounding of interest means there are huge financial benefits to starting a pension plan early.
If you plan to retire aged 65 - and start saving £100 a month at the age of 40 - you're likely to end up with a pension pot worth around £60,000. This is based on a growth rate of 5% a year.
However, if you start saving £100 a month for retirement at 35, the same 5% growth rate will result in a pension pot worth £84,000 when you reach 65. That's despite the fact that you'll actually only have put aside an extra £6,000.
And if you manage to start saving at 25 (with the same monthly savings and growth rates), you'd end up with a pot worth a whopping £153,000!
Which option would you go for? Do you plan to work past 65, or are you keen to retire as soon as possible? Leave a comment and let us know.