Why the first pounds you save work the hardest
Putting a small amount away early on makes a big difference to your final retirement pot.
When it comes to saving over a long period, the first pounds and pennies that you squirrel away can make the most significant difference to your final retirement pot.
That’s according to financial planner Towry, which has put together some examples to show just how compounded returns can boost the size of the pot you have to play with once you stop working.
Some examples
A 30-year-old who saves 5% of their annual income of £40,000 over their remaining 35 years of employment would finish with a pension fund of a little over £153,000 when they retire at 65 (assuming 4% growth each year).
Now let’s compare that to a 50-year old who hasn’t started saving yet. They put 15% of their £40,000 annual salary aside each month for the 15 years until they retire. Because they have missed out on the years of compounded interest, they would finish with a pot of just shy of £125,000, again assuming 4% growth each year. That’s the best part of £30,000 less, as a result of starting late.
All of this should demonstrate the importance of saving something – anything – as early as possible. Even if it’s not much, the years it spends invested means you’ll get a better return from those first few pounds and pence than the more significant sums you may save later on.
See if you're on track for the retirement you want at a glance with lovemoney.com's new Plans service >
Am I on track for the retirement I want?
One way to keep an eye on how your investments are performing, and whether you’re on track for the retirement fund you want, is to make use of lovemoney’s new Plans app.
It’s a single place to keep digital records of all of your savings accounts, pensions, investments and even property details. You can get a simple snapshot of exactly how much you’re worth any time you like.
For more on how Plans works, read Plans: your financial life in one secure place. Or take advantage of a free trial today.
See if you're on track for the retirement you want at a glance with lovemoney's new Plans service >
More on planning for the future:
How to work out how much you need to save for retirement
How to get a State Pension forecast
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