My much older colleagues have been telling me my thirties will be great fun. I trust them and while I can’t really do anything about getting older anyway, it seems like a good time to have a look at something I can control, my money.
I’m not looking at where I can trim the fat and be a bit more frugal, I think we all have an idea of how to do that. Rather, I’m focusing on what I need to do now to help my future self - I can always cut back on the frivolous expenses but I can’t make up for lost time when it comes to long-term savings, I have to act now.
Like a lot of people my age, buying a house is top of my wishlist but it’s likely to stay there for a while. The housing market is a key example of why our finances look very different from our parents’.
In 1997, the youngest age at which more than 50% of people were homeowners was 26, rising to 34 in 2017, according to recent figures from the Office for National Statistics (ONS)1. As a result, 55% of 25-34 year olds were renting in 2018, compared to 35% in 1998.
And it’s not just house prices putting a dent in our savings. The average cost of a UK wedding topped £31,974 in 20192 and more than half of couples needed financial help from their families.
The misconception here is that this generation isn’t that concerned with long-term financial planning but, faced with hurdles like these, we do need to be smarter about how we go about saving for deposits and wedding bands. Something else I’m looking at is making sure my retirement savings are as uncomplicated as possible, and that I’m doing enough to help myself later on.
We’re much more likely to switch jobs than our parents, and with that comes the inevitability of various pension pots building up over time. Bringing them together in one account takes the hassle out of possibly forgetting one or just not knowing where it is in 30 years.
More important is looking at how much we’re putting in each month. Your employer might match your contributions if you decide to add a bit more, so it’s worth checking your Fidelity pension plan documents in PlanViewer.
For example, Danielle starts investing £100 a month when she is 25; Mike invests £200 a month from the age of 45, so they both save the same £48,000 by reaching a retirement age of 65. Assuming a 5% annual return, the effect of compounding has longer to work on Danielle’s investments, and so she ends up with £153,238, almost twice as much as Mike’s £82,5493 [Fidelity International, 2019]. You can check your own rules of thumb as part of our retirement saving guidelines.
This example uses assumed figures and is for illustrative purposes only.
Please remember that the value of investments and the income from them can go down as well as up. This example is not a personal recommendation for any particular investment or action. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
The order and timing of life’s big expenses shouldn’t be underestimated. With no guaranteed income lined up for retirement, more than ever we need to get the snowball effect of compounding started as soon as possible to give us a chance of funding the lifestyle we want later in life. The longer the first part takes, the shorter the savings have time to grow interest on interest.
For me, the important thing is knowing that I’m doing what I can with what I have, and being as smart as I can be about it all. I’ll check in again next year and see if I can do anything more then too.
The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
Withdrawals from a pension product will not normally be possible until you reach age 55. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from an authorised financial adviser.
1ONS 2019 https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/milestonesjourneyingintoadulthood/2019-02-18
3Fidelity International, 2019 https://retirement.fidelity.co.uk/about-workplace-pensions/advantages/