Pensions: Why it pays to start saving early

Cris Sholto Heaton explains why making an early start on saving for your retirement can make a big difference to your pension pot.

There aren't many pieces of investment advice that are simple, easy and guaranteed to work for anybody, but "start earlier and save more" is one. Surveys consistently show that it's the top tip that today's retirees would give the younger generation. Unfortunately, it's a lesson that many of us learn too late.

That's because it's easy to underestimate the difference that an early start can make to your lifetime wealth. To see why, let's consider the fate of three investors who begin saving at the age of 22, 30 and 40 respectively.

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Age at which you begin saving2220%15%10%
Row 1 - Cell 0 3027.50%20%15%
Row 2 - Cell 0 4045%35%30%
Calculations assume national average earnings throughout life, 3.5% safe withdrawal rate after retirement at age 65, and a target pension of two-thirds of pre-retirement income.
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.