The time is now
Eat, sleep, repeat: how your pension grows
Have you ever taken an umbrella and then it rained and you mentally thanked your past self for packing it? Or bought tickets to a sell-out concert on the day they were released and seen others miss out while future-you has the night of their life? Maybe you’ve been on the other end - wishing past-you had taken a different action.
What you do now about your pension is what your future-self will look back on. What would future-you want now-you to do? The good news is - time is your friend right now. The sooner you save, the more time your pension has the opportunity to grow. It’s the power of time, in a little cycle we’re calling ‘Eat, sleep, repeat’.
Eat
Each month you feed your pension savings by investing through contributions.
They come straight out of your pay and in most cases both you and your employer help feed it.
Sleep
You can relax now. The money you’ve invested is hopefully busy growing in value over time. And any growth on your investments is added to the pot. Remember, growth is not guaranteed.
Even though this bit is taken care of for you, you should keep an eye on what’s happening with your pension. It’s your money, and future, after all.
Repeat
Now you’ve got your new total pension - what you or your employer put in with any growth it achieved added to it. And then it’s time to feed it again. A new contribution amount goes in, and this time any growth that may be achieved is on your new total pension savings. Basically, you’re seeing growth on what you’ve invested and any previous growth you’ve achieved. It’s called ‘compounding’ and it’s why investing sooner is better. Remember, this is an example and growth isn't guaranteed.
It’s important to remember that the value of investments can go down, as well as up - so you may get back less than you invest. However, probably the single most important principle of investing is that the longer you hold an investment, the more likely it is to deliver a positive return. Another reason to start early.
When you start investing is more important than how much
When it comes to building up your pension, the length of time you invest for could have the biggest impact on how much your pension could be worth when you reach retirement.
For example, if you were to invest £100 a month for forty years, you'd save £48,000 into your pension. Over that time, your pension could grow by over £105,000 (assuming an average investment growth of 5% a year, before charges). This would give you over £153,000 to enjoy in your retirement.
However, if you were to save the same amount in total but started saving later so that your pension savings only had twenty years to grow, you'd end up with £70,689 less to enjoy in retirement.
So, if you can, it's better to start saving as early as possible - even if you can only save small amounts - it could make a big difference to your future lifestyle.
Five quick wins
Start now
It’s always a good idea to start saving early. As we saw in the example, even a small amount now could make a big difference to your future.
Know your numbers
Check how much your employer contributes towards your pension savings (it’s usually in your contract). Find out if they offer to pay more if you contribute (and, if you can, take them up on it).
Keep going
Retirement is a long way away and there will be a lot of things to save for over the years. But remember, whatever your dreams and goals are, retirement is something we all need money for.
Top up
Over the years you’ll hopefully get pay rises and maybe even bonuses. If you can, increase your contributions. This will give you the opportunity of having a lovely nest egg for your retirement.
Keep track
Having all those savings is one thing. But if you move and don’t tell your pension provider, you might lose track of what money you invested and where. And after all, it’s your money.
Download the Fidelity PlanViewer app. It’s safe and secure without having to remember any passwords, as it logs you in using fingerprint and facial recognition.