A millennial’s guide to retirement

An unexpected consequence of starting this role six months ago is that people now openly talk to me about money. It’s no longer taboo and, if anything, I now know too much: I know who has debt and how much, I know who has financial arguments in their relationship and who’s dependant on the bank of Mum and Dad. The list goes on.

The one money issue that stuck with me the most, however, was the amount of friends who’ve actually opted out of paying into their pensions: because they think the money is better put to use now, and pensions are something for when they’re older.

And then, while on holiday at Christmas, I saw this billboard…

“They say millennials are lazy. Retire early and prove them right.” – Prudential Financial billboard advert, I-95 highway PA, USA

After I finished laughing and had taken a picture to send to half a dozen of the aforementioned friends, I decided to run some numbers with This is Money’s saving calculator. I used a couple of fictional scenarios in an attempt to convince them to start saving for their retirement now.

Friend A: Andrew

Andrew likes the idea of retiring early – or at the very least comfortably – and he starts contributing to his retirement fund at age 23, contributing £200 a month. When he turns 30 he decides to raise his payments to £500 a month for the next 10 years, then effectively stopping any payments at age 40. Total contributions over the seventeen years: £76,800.

Assuming annual returns of 5%, at age 65 his pot could be worth £385,337.

Friend B: Brooke

Brooke thinks retirement planning is for when you’re ‘older’, so she starts putting away £500 a month once she turns 40. Total contributions over twenty-five years: £150,000.

Using the same assumptions, at age 65 her pot of money would be worth £297,755

What can we take from this?

  1. We love compounding
  2. Start saving for your retirement in your twenties
    We talk about paying yourself first, a lot – typically we think of this as our emergency fund or directly savings. But when ‘paying yourself’ don’t forget your future self and your pension. Even if you’re contributing just £100 a month to start with, it will all add up in the long run.Perhaps think of your retirement contributions as a percentage of your income so you don’t feel confined to a set amount. For example, if you’re on a £26,000 a year salary, 10% of your take home pay each month would be roughly £175 – and that’s a great start. Just remember when you get a pay rise or switch jobs to still put away the 10% – meaning if you get an increase to £28,000 per year, your payments should also increase to £186 per month.Also, the earlier you start investing, the earlier you can see if you are saving enough. If you aren’t, you still have time on your side. Andrew, for example, may decide that £385,000 isn’t enough to retire on and therefore continues saving into his 50s. Brooke has no such luxury.
  3. Actively invest for your retirement
    Don’t just squirrel the money away in the bank. To take advantage of compounding you need to think long term – invest for your future. Not sure where to start? Read our guide to making your first investment. 
The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.