When should I start saving for retirement?

Please be advised that the information in this article regarding QNUPS and IHT is no longer accurate due to the recent changes announced in the UK Budget. Starting in April 2025, the regulations will have significant implications that may affect your understanding of these topics. We encourage you to stay informed and consult with a Soteria Trusts expert to navigate these changes effectively.

The answer is simple: start saving for retirement as soon as possible. Ideally, you’d start saving not long after you begin earning money. That’s because the sooner you begin saving, the more money you’ll have in your retirement fund and the more time your money has to grow. If your savings are invested, each year’s gains will generate their own gains the next year, thanks to compounding interest. 

The effect of compounding – retirement savings

Here’s an example of what a big difference starting your retirement savings young can make. 

Let’s say you start saving for your retirement at age 25. You put aside $2,100 in a tax-deferred retirement account ($175 monthly) for 10 years each year, and you don’t set aside any money after that. Assuming a 5% annual return, your fund ($26,414) would have grown to $114,160 by the time you reach 65 years old, even though you didn’t add any more money to your retirement fund past 35. 

In a scenario in which you do decide to set aside $2,100/ year for a total of 30 years (35-65), you will have put aside a sum of $63,000, and (assuming a 5% annual return) your fund would have grown to $139,522. 

You can see that starting to save early pays off more! 

How much money will I need in retirement?

That’s the million-dollar question many ask, but it’s not easy to answer. Normally, advisers will say that you’ll need at least 75% of your pre-retirement annual income to live comfortably in retirement. It’s important to note that this may be true if you are mortgage-free and don’t expect any high medical bills (you should). 

But if you plan to live as you had until you reach retirement and then start to travel the world and live without any financial worries, you may need 100% of your annual income – or even more! Use our simple retirement calculator to show you how much you need to save to get to where you want or if you have a shortfall and need to save more to get the target retirement fund and the income you want.

How much should I save?

Financial advisers would typically tell you to save as much as possible towards your retirement. As a rule of thumb, you should save a minimum of 10% to 25% of your monthly income. However, the best way to establish how much you need to save is to know the size of the retirement fund you will need. If you haven’t done so already, use our Retirement Calculator to help you out with these calculations. 

When is it too late to start saving for retirement? 

You may find yourself in a situation where your retirement fund is simply too small even though you have been saving all your life, or perhaps you started doing so late in your career. Your retirement shortfall shows your savings may just not be enough to last for as long as you want. So, what should you do? 

One strategy is to delay your retirement for a few years or get a part-time job after you retire, which will allow you to make up any shortfall for the lost time when you didn’t save or for the underperforming investments which didn’t grow your money as much as you expected them to. 

Related: Retirement Planning for Expats

Retirement saving strategies 

The No 1 focus of all retirement savings strategies should be to beat inflation. Inflation, the steady rise of prices for goods and services over time, can have good and bad effects. One negative factor is that individual purchasing power is reduced over time due to rising prices across the economy. What you could buy for $100 ten years ago does not equal what you can purchase for $100 today or in the next ten years. Inflation guarantees that your goods and services basket shrink as inflation grows. The same can be said about your retirement fund if it’s not properly looked after. 

Retirement savings accounts

In many countries, you can open a retirement savings account and take advantage of any special local tax benefits. These accounts may defer taxes on the capital gains until you start withdrawing from the fund, or they may even be completely capital gains or even income-tax-free! You can ask us about that in more detail.

Investments 

Reconsider how you invest your money. Your current investment strategy with your employer-sponsored retirement plan or even your individual savings account will need regular check-ups. Some people opt for Discretionary Managed Investments, in which they entrust their money to a selected manager, who is a specialist and manages client retirement funds for them. 

Property investment 

Investing in brick-and-mortar has always been a good strategy to supplement one’s employer-sponsored retirement plans or as a safe option to access equity (funds) or to balance other investments. Property tends to rise according to or even faster than inflation, making it a great asset for long-term investment and future generations as part of your legacy plan. 

Related: Private pensions and inheritance tax (UK)

Will pensions be enough? 

It depends on the accumulated savings in your pensions and your lifestyle. Most people will receive a state pension, but this would not cover all your retirement needs. People also have pension accounts from their employers and some private pensions where they put aside money for retirement separate from what is obligatory. 

Remember, whether your employer-sponsored pension will be enough will be determined just by you. After all, it comes down to the size of your ideal retirement fund, the impact of inflation and what you decide to do about any shortfall that you might have. 

Retirement planning for everyone 

Planning for your retirement will be one of your most important financial decisions. Doing it wisely, ensuring that your money grows at the rate to beat inflation, coupled with legitimate ways to pay less tax than you would on your other investments and assets, such as property, are important aspects of retirement planning that should not be overlooked. 
Contact our specialists for an initial consultation to see if we can help you create a tax-efficient retirement fund that exceeds your expectations and is easily transferable to your loved ones or dependents.