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What to do if you're 35 and DON'T have twice your salary saved

Felicity Hannah
‘Focusing solely on building up a pension pot ignores the reality of life for most people under 35’

If you’re in your mid-thirties then you need to have twice your annual salary saved into your pension pot. That was the recent advice from the Transamerica Centre for Retirement Studies across the pond.

It’s safe to say it didn’t go down well with millennials.

And that’s not surprising. Rents are high and rising, making the struggle to save for a first home hard even before you take into account house prices. Student loan debts take a bite out of many people’s income and then comes the cost of childcare.

Last year a study by Admiral Loans showed that parents are paying as much as 55 per cent of their salary towards childcare, with full-time care for a child under two costing an average of between £800 and £1,383 depending on location.

So no wonder millennials spit out their coffee at such simple advice. Perhaps you need to have that much saved but if you haven’t managed to then what can be done?

After all, knowing what you should be saving isn’t much comfort if you’re struggling to stay out of debt each month or if you’ve not yet managed to buy a home.

If you’re in the position of struggling to save but also thinking it might be nice to be able to afford food in old age, what can you do?

We asked some independent financial advisers for their suggestions. Because it would be nice to be realistic about what younger people need for their future financial security while also being realistic about what they can actually do to save more.

You have not completely screwed up your future

One reason pension savings suggestions upset so many people is the implication that if you have not achieved that goal then you’ve already ruined your future.

But Rebecca Aldridge, managing director of Balance: Wealth Planning, says that a pension might actually be entirely the wrong priority for someone aged 35 or under.

“Focusing solely on building up a pension pot ignores the reality of life for most people under 35,” she says.

“Many have high levels of debt and those with children will probably be experiencing the most expensive time of their lives in proportion to their earnings. Most worryingly in my view, most have little in accessible savings, making them incredibly vulnerable if they are made redundant, can’t work due to illness, want to take longer parental leave or so on. A healthy pension fund won’t help with any of those.”

So what should people who don’t feel able to siphon salary off into a pension pot do to help protect their financial future? “My advice is to focus mainly on saving a little every month to overpay debt and build up savings of six months’ spending.

“When that foundation is secure, you can then look at putting money into a mixture of other savings pots which are designed for the longer term, including stocks-and-shares ISAs, lifetime ISAs and pensions. They are all different, and it’s good to have money spread between them.

“With this approach, your pension fund may not look like much until later in life but you’ve ticked three other important boxes: you have financial discipline, your debt is on the way out and you could manage if your income suddenly stops.”

Later saving can be enough

It’s very easy to make a simple statement that savers need to put away a specified chunk of their income each month, every month in order to achieve their pension dreams.

Yet Chris Ball, a financial planner at Boolers, says it’s understandable that what you can afford to save might ebb and flow at different times. If you can’t save as much as you want to in your thirties, you may be able to prioritise pension savings more in later years.

“Clearly, the earlier you start saving for your retirement the better,” he says. “The ‘cost of delay’ can be significant, however, the straight-line approach adopted by most illustrations and forecasts often doesn’t take account of the everyday reality that savers face.

“Most people use their fifties and increasingly their sixties to catch up on any savings gaps they have. Often it is only when mortgage debt has been repaid that it is then feasible for large retirement savings to be considered.”

Of course Ball is not suggesting that you can just relax about pension savings and trust to your later years to put it all right. You need a plan that takes account of your current financial demands but also recognises the importance of making savings.

“My advice is for savers to set realistic targets, create a sustainable plan for saving and adapt that strategy over time in light of their changing circumstances.”

Do the sums

One way to gain control of your retirement planning is to look it straight in the eye and work out what you need to do in order to achieve a comfortable old age.

Lena Patel, a chartered financial planner and director of ISJ Independent Financial Planning, suggests sitting down with a paper and pen, and working out realistic goals – goals that allocate more than the minimum daily living expenses.

She says: “List and prioritise your saving goals, saving for a house, planning for children, saving for a special holiday, retirement planning and then allocate your surplus disposable income accordingly to savings pots for those goals.

“Saving is an important part of life-planning, however, so is spending. Life is for living and enjoying yourself, therefore striking a balance between spending and saving now is key to a healthy retirement.”

Alasdair Walker, a chartered financial planner at Hunter Aitkenhead & Walke, says there’s no need to despair even if you’re already 35 with nothing saved, you just need to work out what has to be done.

“The good news is that a 35-year-old can start their retirement saving from £0, and still retire comfortably,” he insists.

“It might take a little more work but it’s definitely doable. The rule of thumb has always been whatever age you start saving, save half your age as a percentage of your annual income for the rest of your working life. A 20 year old with amazing forward-planning would save 10 per cent, but a 40 year old would save 20 per cent. So, not an impossible task, but not painless either.

“How can we make this easier? My favourite method borrows from behavioural finance and is called ‘Save more tomorrow’. It’s easier to commit tomorrow’s budget than today’s, so start today with what you can reasonably afford, and agree (preferably with your pension provider or employer) that you will increase contributions annually for the next five years.

“That might look like 5 per cent today, and a commitment to add 2 per cent a year. Studies have shown this to be incredibly effective – in one example savings rates increased from 3.5 per cent to 13.6 per cent, with relatively little pain.”

If that still sounds painful to you then remember that it’s not all your contribution.

“The other point to remember is that the rule of thumb is ‘total savings’,” he explains. “A basic-rate taxpayer in employment can expect a minimum employer contribution to their pension of 3 per cent PA and a government top-up of 25 per cent on anything they save. The rather daunting 20 per cent target for a 40-year-old then becomes 13.6 per cent, after top-ups.”