What are my best options when saving for retirement?
Pensions, investments or savings could all have a role to play as you prepare your finances for the future
Key takeaways
Tailor your savings plan based on your individual needs and aspirations
Consider your desired lifestyle and annual expenses during retirement
Qualifying years of National Insurance contributions affect your state pension eligibility
Circumstances often change outside of your control, so you may want to look at protection such as life insurance and critical illness cover too
Everyone’s situation is unique, and seeking professional advice can help focus your retirement savings plan
What should be your key considerations for retirement savings?
Before diving into multiple savings strategies, it's crucial to take stock of a few key factors:
Retirement income needs: Your desired lifestyle and annual expenses will dictate the income you'll need once you retire. This varies from person to person, so it's important to tailor your savings plan accordingly
Retirement age: When do you plan to retire? The state pension age will be 67 by 2028, and your personal circumstances could lead you to retire earlier or later. You'll need 30 qualifying years of National Insurance contributions for the full basic state pension if contributions began before April 2016, or 35 full years if started after that date
Risk tolerance: Your comfort level with investment risk will influence the saving and investment options you choose, as they come with varying levels of risk and potential returns
Accessing your wealth: Locking your savings away for a longer period can lead to greater returns, but you should also consider when you might need to draw on it
How much money do I need to retire?
The million-dollar question (sometimes quite literally) is how much you'll need to retire. There's no one-size-fits-all answer; some may live comfortably on £600,000 at 65, while others may need more or less, or choose to retire at a different age. It's a personal equation that depends on your individual outgoings and aspirations.
Our guide on How much pension do I need to retire? looks in more details at the options, including what your target pension should be depending on your salary.
When should I start saving for retirement?
The sooner you start, the longer your money has to grow through the benefits of compound growth. Even modest, regular contributions can build into a significant sum over time.
But don't fret if you're getting a late start because it's never too late to begin putting money aside for retirement.
What are my retirement saving options?
There are several avenues to consider when saving for retirement. These include:
Pensions
Whether it's a workplace pension, a personal or private pension, or a Self-Invested Personal Pension (SIPP) for those not part of a workplace scheme, these come with tax benefits and, in some cases, employer contributions.
If you’re self-employed, you can still set up a personal or private pension with a provider and enjoy tax relief on your savings. The state pension is also a pillar of retirement income, contingent on your National Insurance contributions.
Savings accounts
Options like cash ISAs, fixed rate accounts, and regular savings accounts offer secure ways of saving.
While potential returns may be lower than stock market investments, your capital isn't at risk, and these accounts are ideal for those who might need money in the short term, such as for purchasing a retirement property.
However, be aware of the potential impact of inflation on cash savings, which could erode the cash value of these accounts.
Investments
For those willing to embrace more risk, investment products like stocks and shares ISAs or a Lifetime ISA (LISA) can offer higher returns. Remember, there are annual limits and tax benefits to consider, and it's wise to consult a financial advisor before diving in. T
he value of investments can drop, so it's important to weigh the lower risk of savings accounts against the higher risk but potentially higher returns of stocks and shares.
The stocks and shares ISA has an annual limit of £20,000, and the Lifetime ISA is available to those aged 18 to 39, with an annual limit of £4,000 and a government bonus of 25%. However, there are caveats associated with a Lifetime ISA, such as restricted access to funds.
What is the best way of saving for retirement?
It's all about finding the right balance for your situation. Pensions are a solid choice due to their tax relief benefits – and depending on the scheme you might also receive contributions from your employer.
The drawback is that you cannot access the money before retirement age without heavy penalties.
Fees and charges also apply to the management of a pension. Other investments might yield high returns but come with risk, fees, and the potential for charges when selling investments, whereas savings accounts provide security with potentially lower returns.
What else should I think about for retirement?
Planning for retirement isn’t just about building as big a pot as possible to see you through old age.
You might also want to consider how you can protect your lifestyle and the lifestyle of your loved ones should circumstances change.
As such it’s worth looking at life insurance and critical illness cover, as well as other options such as mortgage protection and income protection.
Another factor to consider if you’re nearing retirement is the home you’re living in and how much money is tied up in the property.
As part of the planning process you might want to consider downsizing, or releasing some funds through a process called equity release.
Because planning for retirement has multiple considerations it is often smart to take advice from a professional.
Personal Finance Expert
Our expert says
“Saving for retirement is an important and often daunting step, which is why people put it off too long. However, the earlier you grasp the nettle and come up with a plan, the more chance you have of living the lifestyle you want in the future.
"It is also often an area where it’s worth taking advice so you’ll also have the peace of mind that you’ve prepared for different eventualities.”
Other useful guides
If you’re looking for more guidance on retirement choices, we have a helpful list of guides to assist. These include:
Compare savings accounts with MoneySuperMarket
When it comes to savings accounts, MoneySuperMarket is here to help. You can compare easy access, regular saver, fixed rate bond, or cash ISA options from across the market.
For each account you can review the interest rates, restrictions, and sign up with new providers to optimise your retirement savings in just a few minutes.