The best way to save for your old age

In theory, saving for your old age is pretty simple stuff, says Merryn Somerset Webb. Save as much as you can into a tax-efficient wrapper, and ensure you take full advantage of the miracle of compounding by reinvesting all your dividends. But there are complications.

Saving for your old age is an important business. Most of us have little idea of how much we need (research from HSBC shows the average under-24-year-old thinks £50,000 will do the trick!), and those who do aren't quite sure how they are going to get the cash together.

Read the personal finance pages and you will find solutions aplenty. However, in the end it comes down to pretty simple stuff: save as much as you can for tomorrow without making a misery of today. Save it into a tax-efficient wrapper, preferably an Individual Savings Account (unless someone else is matching your pension contributions, in which case use a Self-Invested Personal Pension). Use the money to buy low-cost, sensibly run funds, preferably investment trusts which tend to have better performance records than unit trusts. Ensure you take full advantage of the miracle of compounding by reinvesting all your dividends.

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