Your comprehensive timeline for building your long-term wealth

Category: Financial Advice&News

If you want to save for your financial future, there’s no better time to start than now. But while you might be certain that you want to save more, it can sometimes be hard to know how much you should be saving.

One of the biggest financial goals that many people put money aside for is a comfortable retirement. While this is one of the most popular goals to save towards, studies published by Unbiased show that one-third of Brits don’t know how much they’ll need to save.

If you want to have enough to enjoy a comfortable retirement, it’s important to know how much you need to save at which stage of life. Read on for a comprehensive timeline of how much you should be putting aside.

In your twenties

One of the benefits of saving early is that your wealth will have more time to grow and can benefit for longer from the effects of compound interest, generating growth on your previous growth.

One of the benefits of building your wealth in your twenties is that if you choose to invest, you may be much more able to take risks. This is because your longer time horizon allows you to ride out periods of market instability.

While taking greater risks raises your chance of losing money, it can also lead to greater returns and allow you to grow your wealth more effectively.

One of the main issues you may run into in this age category is that you don’t have as much disposable income, as people in their twenties are more likely to rent and to be on a lower-than-average wage. This can sometimes make it hard to put aside savings for the future.

If you want to save effectively, one of the best ways to do so is with an Individual Savings Account (ISA). Since you don’t have to pay Income Tax or Capital Gains Tax on the returns, it is a tax-efficient way to save.

While you’re unlikely to be able to take advantage of your full annual ISA allowance, which stands at £20,000 for the 2021/22 tax year, it’s important to contribute when you are able.

If you want to grow your wealth in this way, there are several ISA products to choose from. One of the most popular choices is a Cash ISA, which allows you to earn interest on your savings without having to pay Income Tax.

Since you save in cash, these accounts typically offer a higher degree of flexibility and allow you to withdraw your money at any time. However, they also tend to have low interest rates, which may not keep pace with the rate of inflation.

Alternatively, you may prefer a Stocks and Shares ISA, which allows you to invest your money instead. Returns from this type of ISA are typically above the rate of inflation, but also come with the risk of losing money.

Making pension contributions now can also help your savings to generate compound returns over several decades.

In your thirties

At this stage of life, it’s likely that your income will be increasing as you climb the career ladder, though you may also have other financial commitments to think about.

For example, according to figures from consumer data company Statista, this is the period in which the average Brit buys their first home. This is also the period in which many people choose to start a family, meaning that your outgoings are likely to go up.

Even though life gets more expensive in this age category, it’s important to think of your future self as well as your present financial obligations. If you do need to take a break from your ISA or pension contributions, you may want to restart as soon as you are able.

In your forties and fifties

As you’ve had time to advance your career, your forties and fifties can be some of your peak earning years. On top of this, you may find that your outgoings fall as you approach the end of your mortgage period and your children begin to fly the nest.

The amount that you save in this period is also largely dependent on your life goals. If you want to retire early, then this will affect your financial strategy as you will need to put aside more. Thankfully, you’ll probably be in a strong position to save and can make up for any lost time.

At this stage of life, some people prefer to reduce their exposure to risk by rebalancing their portfolio to include a greater proportion of “safer” investments, such as gilts.

In your sixties

This is the age at which many Brits choose to retire, which is why it’s important to ensure that you have enough wealth to support you throughout retirement.

One important thing to bear in mind is that even once you are retired you can continue to contribute to your pension. Until the age of 75, you can still benefit from government tax relief, which can be a useful way of topping up your savings.

However, it’s also important to remember that if you’re drawing your pension while continuing to pay into it, you may be as affected by the Money Purchase Annual Allowance (MPAA), which restricts the amount of tax-efficient contributions you can make.

In this age category it’s also important to consider your estate planning. One possibility that you may want to consider is taking an income from your ISA first once you retire.

The benefit of doing this is that if you have an untouched “drawdown” pension then you may be able to leave it to your loved ones when you pass away, mitigating potential Inheritance Tax concerns.

When it comes to building your wealth for retirement, there can be a lot of things to think about. If you want to make the process simpler, then you may benefit from speaking to a financial planner.

When you work with a professional, they can help you to make informed decisions about growing your wealth, allowing you to do so more effectively. They can also regularly review your financial situation as you approach retirement so that you’ll know whether you need to put aside more money or scale back your desired lifestyle in retirement.

Get in touch

If you want to be able to grow your wealth in the most effective way, get in touch. Email us at office@verve-financial.com or call 0330 320 5048.

Please note:

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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