When you are a young adult and you are early on in your career, you probably have not given much thought about a pension. A lot of people start to consider starting a pension when they progress in their profession.
But, it actually pays to start your pension at a young age. While you may think that your retirement is a long way away, preparing in advance is always going to be your best option. If you do not believe us, here are some reasons why you should start your pension now.
State Pensions Are Not Always Enough
If you are young, you may be thinking that you can depend on the state pension that you will receive when you retire. Indeed, this can provide you money to live on and it is a great thing to look forward to. But, it is not as much as you would think. You have to contribute national insurance for many years before you will be entitled to a state pension too. For some, this is not going to be enough to live on when they want to retire. This is particularly true if you want to have an active retirement and enjoy a lot of hobbies, traveling or purchase nice things.
The state pension is only going to provide you with around £9,000 a year when you retire. This is going to be significantly less than you are going to earn throughout your lifetime. It may be enough to pay your outgoings but it is not going to allow you to do everything you want to when you finally have the time. Starting your own private pension can be a good way to have more money to play with. You can receive more when you retire.
Take Advantage of Tax Relief
A lot of people are put off starting a pension fund early because they want to enjoy their money now. However, something that you should realize about pensions is that they are a great way to enjoy tax relief. Thus, with every payment you make into your pension pot, the UK government is going to repay you the tax at the rate you pay. Think about it as receiving extra money. It can be beneficial to invest in financial services so that you are doing everything you can to build your pension from an early age.
Have a Better Retirement
After working all of your life, you will be looking forward to your retirement. Of course, you will want to enjoy yourself and do everything you want to do since you have time on your hands. The earlier you start saving for your pension, the more money you are going to have to play with later on. It goes without saying that investing from a young age is a good idea if you want to live more than comfortably in your retirement. You do not have to make huge payments into your pension saver straight away. You will be surprised at how much just £50 a month can do.
Enjoy the Compound Interest Effect
You may think that people investing the same amount of money into a pension saver will have the same total in the end. However, this is not always true. In fact, the person that starts earlier is going to enjoy more in their pension pot and this is true even if they make smaller payments each month. The reason for this is compound interest. The more years that you invest, the more interest you are going to earn. You can enjoy a bigger pension just for starting earlier in your career.
When Should You Start a Pension?
A lot of people wonder if there is an ideal age to start a pension. The answer is, the sooner the better. The younger you are when you start saving for retirement the more money you are going to have at the end. What’s more, it can feel like you are hardly paying anything into the pension pot and that it is not affecting your current finances.
Ideally, you want to start your pension in your 20s. This is not something you will think about straight away, but once you have a steady job, you can start making contributions to a pension. Again, you do not have to save a lot of money each month. Just make regular payments into a private pension and you are going to have a good pot to enjoy.