millennials retirement

millennial retirement

For millennials, retirement might look a long way away, particularly when there are so many more immediate demands on their finances, like trying to juggle saving for a deposit while being forced to spend a large proportion of their income on rent.

In this context, it’s understandable that pension contributions and retirement savings can get forced down their list of priorities. However, despite being dealt a very different hand from the generations that went before them, there are ways that millennials can take control of their retirement planning now, while time is on their side. Here are some retirement planning for millennials suggestions:

Start saving early

However small or insignificant your saving may initially feel, saving is a habit and the power comes from compounding your savings over long periods of time. Learning to save starts with being aware of your expenditure and having the discipline to regularly put money aside for the benefit of your future self.

With steadily rising life expectancy over recent decades, pensions will need to provide an income for a longer period of time which means the younger generation of today are likely to need to put more aside.

Longer life expectancy and an ageing population are also impacting the State Pension. The Government has raised the age at which individuals are eligible to receive their State Pension to 68 and there is no guarantee that this won’t rise further by the time millennials reach retirement. So, the sooner you start, the better.

Consider joining your company pension scheme

Millennials don’t quite benefit from the generous pensions enjoyed by previous generations but that’s not to say there are not opportunities for them.

Under auto-enrolment, your employer is required to provide at least a minimum level of contribution on your behalf. By remaining a member of the scheme, you will receive a helping hand with your saving by taking advantage of ‘free money’ on offer from your employer. Some employers also offer to match the contributions you are making personally, providing further incentive to maximise your pension savings.

In general, the private sector has moved away from promising a guaranteed inflation-linked pension income for employees, and this has shifted the onus for pension saving from the employer to the individual. Although auto-enrolment has gone some way to plugging this savings gap, the minimum savings thresholds alone may not be sufficient to provide the retirement that many will desire.

A good start would be to look at your most recent statement or log in to view your pension online, get familiar with your pension balance and understand what size pension pot you are on course to amass, making alterations to your contributions where necessary.

Make it automatic

Arrange for your regular savings to be made automatically by direct debit or standing order. Not only will this save you time, automating your savings has behavioural advantages as it forces you to be disciplined by removing the temptation to spend the money before you get round to saving.

Many people struggle to save as they prioritise their expenditure in the wrong order, placing saving last after a list of ‘needs’ (rent, utilities, food) and ‘wants’ (leisure, dining out, clothing). Making your savings automatic, preferably on or shortly after your pay day, pushes saving up the priority list and makes it more likely you will stick to your savings plan.

Although it can be difficult, saving should not feel like a chore. Instead of thinking about how much income you have given up and what else you could have used it for, try to think of saving as a way of treating your future self.

Make incremental increases

Once you are in the habit of saving, aim to incrementally increase your level of savings at least annually. Try to be intentional about nudging up your regular savings, whether it aligns with a pay rise or even increasing what you save by reducing your monthly outgoings.

Regular increases to your savings might seem trivial at the time but can make a huge difference to the size of your future pot.

As an example, if you were to save £200 per month for 20 years, generating a 5% return on your savings each year, you would end up with savings of £81,507 after 20 years.

However, if you endeavoured to increase your £200 per month savings by just 5% each year, you would be left with total savings of £124,582 after 20 years.

In this example, making small incremental increases over long time periods could add a significant amount to your final value.

Educate yourself on pensions

Take responsibility for understanding your pensions, how they work and what they are invested in. There are plenty of reliable sources of information available to help you improve your knowledge of personal finance, including articles, videos and podcasts.

As millennials are likely to have switched jobs much more frequently than previous generations by the time they reach retirement, it will also be more important than ever to keep track of the multiple pension plans accrued throughout their working lives.

Whilst the above points provide a simple and effective framework for those earlier on in their savings journey, a financial planner can help give you clarity on whether your personal savings plan will allow you to create the retirement you desire, in the most efficient way.

To understand how you can optimise your route to financial independence, please get in touch.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Luke Norman

Chartered Financial Planner

Luke began his career in financial services in 2013.

Learn more about Luke Norman