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Saving for Retirement

What are my best options when saving for retirement?

published: 17 May 2022
Read time: 5 minutes

Pensions, investments or savings could all have a role to play as you prepare your finances for the future

Thinking about how we’ll fund our old age can be a challenging subject: we don’t know exactly how much we’re going to need, or for how long. While pensions are one route to planning a happy retirement, there are many other ways of investing and saving money for the future. Our guide looks at the different options to help you make the right decision for you.

What do I need to consider when saving for my retirement?

There are several factors to consider, such as:

How much income will I need? 

This is perhaps the biggest question – just how much will I need to live on when I’m older? It can be tricky to gauge because it depends on a few variables. But a good start is to consider the type of lifestyle you want to lead when retired and how much annual income you might need to finance it. 

At what age do I want to retire? 

The state pension age for men and women will be 67 by 2028, but your workplace or personal pension may have different terms and ages. You could also choose to retire earlier or later. Working out a planned retirement date can help you decide how many years of work you have left. This can help determine how much you’ll need to save and invest for retirement.

What risk level am I happy with? 

Where you invest or save your money will help determine how much you’ll get back in retirement, but there will be varying degrees of risk. Savings accounts are on the low risk side but are likely to pay lower returns and the cash value could be eroded by inflation. Putting your money into stocks and shares and equity funds has the potential to earn more, for example, but you could see the value of your investment drop too.

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How much money do I need to retire?

How much money you need saved to retire depends on your outgoings and the level of lifestyle you want to lead. There is no defined figure to aim for. For example, while retiring aged 65 with £600,000 could work for some, others may feel they can retire comfortably with less at a younger age. Read our useful guide on How much pension do I need to retire?

At what age should I start saving for my retirement?

The earlier you start saving for your retirement the better because it gives more time for your money to grow. Saving small amounts regularly will soon start to add up over the long term. Also if you want to take more risk with stock market investments the longer your time frame for investing the better – as this can spread out the peaks and troughs in the market. That said, it’s also never too late to start saving for your retirement.

What are my options for saving for my retirement?

There are a range of different ways to save and invest for later life. These include: 

Pensions 

Pensions are a tax-efficient way to save for retirement. If you’re employed, saving into your employer’s workplace pension is often the best option as they may also contribute money into the plan. 

If you’re self-employed you can still set up a personal or private pension yourself with a pension provider. You’ll receive tax relief on your pensions savings depending on your tax rate. You may also receive a state pension at your state pension retirement age (you’ll usually need 30 qualifying years of National Insurance contributions to get the full basic state pension).   

Savings Accounts  

There are several choices with savings accounts for retirement including cash ISAs, fixed rate accounts and regular savings accounts. The longer you are prepared to lock your money away, often the higher the rate of interest you’ll receive. Potential returns can be lower than you may receive over the long term with stock market investing. But your capital is not at risk (as it would be on the stock market).

Investing 

There are a wide range of investment products and platforms available which can help you invest for retirement, including tax-free options such as a stocks and shares ISA or Lifetime ISA (LISA)

While investments can offer potentially high returns, you typically also take on more risk. You can put up to £20,000 in a stocks and shares ISA within the tax year and benefit from tax-free returns. If you are aged 18 to 39, you can open a Lifetime ISA and invest up to £4,000 a year into a stocks and shares LISA and benefit from a government bonus of 25%. LISAs come with restrictions – including restricted access - so make sure you understand what you’re signing up to. 

Which savings option is best for me?

In many cases a pension is a good option for those saving for retirement, because even if you’re not part of a workplace pension scheme and start your own Self-Invested Personal Pension (SIPP), you’ll benefit from valuable tax relief on top of your savings. One drawback of pension saving is that you won’t be able to access your money before retirement age – unless you’re prepared to accept heavy penalties. You’ll also have fees and charges applied on the management of your pension.

A savings account may not pay the highest rate of interest, but it can give the certainty that the money you put in won’t fall - in the way you can see losses with a falling investment. This makes savings accounts ideal for those who might need the money in the short term, if they were looking to buy a retirement property, for example.

Investing is a way of potentially receiving greater returns and if you choose a stocks and shares ISA you have a tax-free wrapper for the first £20,000 you put away. But stock market investing can be volatile and you’ll need to be comfortable with taking more risk with your money. While you may be able to withdraw your money quickly should you need it, it could also depend how long it takes to sell the investments, and there might be charges involved.  

Compare savings accounts with MoneySuperMarket

There are a range of savings accounts available with MoneySuperMarket and you can compare your options and quickly sign up to a new provider. 

Whether it’s an easy access, regular saver, fixed rate account or a cash ISA, you can compare the different rates on offer as well as any restrictions, then click through to open the account.

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