Your 20s is that decade where society says you're old enough to have some responsibilities, but young enough that you haven't quite settled down yet. For example, the latest figures from the Office for National Statistics show that more people are getting married in their 30s today than they were in 1970. The average age of someone buying their first home is about 30-years-old, meaning full-time employees are saving towards this from age 22-29.
But what about life after 60? It may seem odd to be thinking so far ahead, but your future you, will thank your present you, if you take care of yourself now. Here are some reasons why you should think about saving ahead for later life even though you are in your 20s.
What is my pension made up of?
Your retirement funds can be broken down in two main ways: state pension and occupational pension.
Currently, the new state pension is £179.60 per week, or £9,339.20 a year. This is the money you get from the government upon retirement if you fall into at least one of the following categories for at least 10 years:
Working and paid national insurance contributions
Paying voluntary national insurance contributions
Getting national insurance credits for example if you were unemployed, ill or a parent or carer
You can check your state pension age- the earliest age you can start to claim your pension here on the gov.uk website.
Occupational or workplace pension, is the scheme provided by your employer, where both you and in most cases your employer contribute towards your retirement. All employers must provide this scheme by law and the new system of automatic enrolment means if you don't want to be part of it you can opt out.
You have to be:
Classed as a ‘worker’
Between 22 and state pension age
Earning at least £10,000 per year
Usually (‘ordinarily’) working in the UK (there is further guidance here for what this means)
If you change jobs, your new employer should still contribute- check the details with them.
Watch: How to save money on a low income
How much has the average person in the UK saved for retirement?
The average person has £50,000 to their name for retirement.
This is not very much at all. To put this into perspective, the average monthly pay in London where earnings are some of the highest in the country, is £2,398, or £28,776 a year. With a £50,000 pension pot and living at the same standard, that wouldn't even cover you for two years. Furthermore, life expectancy is 79 years for males and 83 years for females. If your state pension age is 65 for example, your money needs to stretch at least 14 years.
So why should I save now and how do I start?
In your 20s you have fewer responsibilities than someone much older, so it's easier to save now than a lot more later with more financial pressure.
State pension alone will not cover you- check with your employer to make sure you are eligible and auto-enrolled.
If you do not have enough money saved for retirement you may have to keep working beyond state pension age. Working into your 70s if you don't have to and don't want to doesn't sound like much fun.
Lifetime ISAs (or LISAs) are one way to help you save for retirement, but it can also be used for buying your first home. You have to be aged 18-39 to open one.
The benefit of ISAs is that unlike other types of savings accounts, you do not pay income tax on them. This means that you keep the interest you build up through your bank's contributions every time you put money into your LISA.
Up to £4,000 each year can be put in, until you turn 50 and your first payment into the ISA has to be before you turn 40. The government will add a 25% bonus to your savings, which is up to £1,000 maximum per year.
The £4,000 limit counts towards your annual ISA limit – £20,000 for the 2021 to 2022 tax year.
The Lifetime ISA gives you the choice to hold just cash, or stocks and shares in it, or a combination. As ever with investing, your returns could be lower, as well as higher.
You can withdraw money from it if you are 60 or over or terminally ill, with less than 12 months to live. Any other reason is known as an unauthorised withdrawal and will incur a withdrawal charge of 25%. This matches the government bonus of 25%.