If you want to retire, start saving now
If you’re expecting to retire comfortably on a state pension you will be very disappointed. You need to start saving. And you need to start saving now.
I am bemused by the coverage of George Osborne's announcement that henceforth the state pension age will rise with life expectancy, which suggests that today's young will not get their pension until they are knocking around 70. Anyone born this year might end up waiting until they are 77, and those born in 2050 until they are 84 (PWC numbers).
The papers were instantly filled with pictures or perfectly prosperous-looking young people sadly noting that "we may never enjoy retirement". Alongside those came laments from columnists across the political spectrum pointing out that, while we might be living longer, we aren't necessarily living healthier. What if we can't actually cope with working that long, they asked?
But this all seems to miss a perfectly obvious point: anyone who equates retirement with the age at which they get a state pension is living in another world one without record levels of debt and a consequent guarantee of broken financial promises at every turn regardless of who is in government .
No one who has even the vaguest understanding of how the UK's public finances work and will work (there isn't enough money) is even thinking of relying on their state pension. They know that's just not an option. They're saving now so they can retire when they feel like it. That means auto enrolling in company pensions as soon as possible and adding to the minimum as much as possible from as early an age as possible.
Then, when you have a reasonable amount in your pension pot, saving as much into ISAs as possible (I'm nervous of a new pension tax). How much and how soon? Save £200 a month from the age of 20, see it return an average of 5% a year and you will have a lump sum of around £405,000 when you retire at 65. Start at 40 and save double that and you will only have £238,000.
Start early, even if you have to start small.