Morningstar’s Guide to Planning for Retirement

SPECIAL REPORT: As investors we are increasingly short-termist. But when it comes to pension provision, you have to think long term

Emma Wall 3 April, 2017 | 9:24AM
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We are all guilty of present bias. Delayed gratification is rarely preferable to instant satisfaction – and as investors we are increasingly short-termist. But when it comes to pension provision, you have to think long term – or be prepared to see a significant drop in your standard of living.

The problem with investing for retirement is it seems a very long way off for so many of us. The State Pension age is now 67, with an average life expectancy of 80 years. Seemingly more pressing financial obligations call out to be prioritised; children’s education, family holidays, DIY. But if you start investing for retirement early enough and the burden is far less; put off saving into a pension and the sacrifice have to make is much greater to meet the same financial goal.

The two most important factors when saving for retirement are how much you pay in and how long you save for; good investment performance, low charges and shopping around at retirement all help but if you haven’t saved enough, for long enough, you’ll always be struggling.

Compared to starting at age 25, if you start saving for retirement at age 22, you’ll increase your pay-out by around 20%, by contrast if you leave it until 35, you’ll get around 50% less.

A useful rule of thumb is the half your age times your salary: whatever age you start saving at, you should look to invest half this number as a percentage of your salary. So, start at age 30 and you should save 15% of salary; at age 40 it would be 20%.

Once you have made the decision to invest in your future, we’re here to help. This week marks the end of the 2016/17 tax year on Wednesday April 5 – and the beginning of a new one on Thursday. If you have yet to take advantage of your annual pension allowance, do so before midnight on Wednesday night – and while you’re considering your option for this tax year, get in early with the your 2017/18 allowance.

For investment ideas, back to basics education and advice from the experts read Morningstar’s Guide to Planning for Retirement.

Monday: Back to Basics

What is a pension and why should you have one?

What is a Pension?

Pension Savers Stung by Lower Annual Allowance

How to Invest in Your 20s and 30s: Get Over the Present Bias

Why You Can't Afford Not to Invest

Tuesday: Workplace Pensions

Making the most of your workplace scheme

What is Pension Auto-Enrolment?

How to Get Free Cash from Your Employer

Should You Stay Invested in the Default Pension Fund?

ISA and SIPP Investors' Favourite Funds

Wednesday: What the State Provides

The new flat-rate pension and the future of State support

Born After 1961? Be Prepared to Work for Longer

Act Now to Beat the New Tax Year

ISA Investors Favourite Stocks: Oil and Utilities

How is Your State Pension Changing?

Thursday:  Building a Pension Portfolio

How to DIY your retirement saving

New Lifetime ISA Launches Today

Investor Views: I'm Investing for My 4 Year Old Twins

3 Top One-Stop-Shop Funds

How to Build an Investment Portfolio

How to Save for Retirement

Friday: Investing in Retirement

With life-expectancy increasing, your pension pot has to last

What is Pension Drawdown?

How to De-Risk a Portfolio in Retirement

How Retirement Spending Affects Withdrawal Rates


The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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