Saving for retirement in your 30s

Retirement might seem a long way off in your 30s. But when it comes to saving for retirement, starting early is one of the most effective steps you can take towards achieving a financially secure retirement.

While many people dream of sandy beaches and sunshine in their golden years, relying solely on the State Pension simply won’t give you enough retirement income to maintain your desired lifestyle.

The good news? It’s never too late to get back on track. This guide is designed to give you insights and perspective to kickstart your motivation and help you navigate saving for retirement in your 30s.

Why saving for retirement in your 30s matters

The power of compound interest is a real game-changer. The sooner you start saving, the more time your money has to grow. Even small contributions early on can snowball into a significant sum by retirement.

Early planning also reduces stress later in life and allows you to enjoy a more financially secure retirement.

Sounds good, doesn’t it? So how are you faring compared to the average 30-something?

Average pension pot at 30

According to figures from PensionBee, the average pension pot for a woman in her 30s is £8,927 while for a man it’s £11,326. That stark gender gap means that women have a fifth less saved (21%) on average than men.

Based on several assumptions, including an annual growth rate of 5% and a minimum required contribution of 8%, PensionBee surmised that these figures would result in an overall pension pot of £166,904 by age 66.

To put that into perspective, figures from the Pensions and Lifetime Savings Association (PLSA) suggest that a single person requires a minimum annual retirement income of £14,400 to cover all their needs with a little left over.

For a moderate lifestyle that provides more flexibility and financial security, that figure more than doubles to £31,300. The figure for a comfortable retirement, including some luxuries, is £43,100.

Couples will need the equivalent of £22,400, £43,100 or £59,000 to achieve these respective lifestyle standards.

According to BBC coverage, the PLSA forecasts that single pensioners will need around £70,000 of savings to buy an annuity or draw down an income to cover their minimum costs rising to £490,000 for a moderate living standard, and £790,000 for a comfortable retirement.

All things considered, these figures suggest that the average pension saver is only on track to cover their basic living standards but is some way short of achieving a moderate and certainly a comfortable retirement.

How much should you have saved by 30?

There’s no magic number, but a general rule of thumb suggests aiming for roughly 1x your annual salary saved by 30. Remember, this is just a starting point, and your individual circumstances will play a role.

According to the latest figures from the Office for National Statistics (ONS), as reported by Forbes, the average salary for full-time employees aged 30-39 is currently £37,544.

Based on the 1x rule above, this is considerably higher than the PensionBee findings we mentioned earlier.

This disparity tallies with research by the PLSA that found that a staggering 77% of savers don’t know how much they’ll need in retirement and only 16% can give a figure.

Knowledge is power and, in this case, the starting point for getting your pension savings back on track.

How to start saving for retirement at 30

Let’s face it, your 30s are a bit of a whirlwind. Between juggling childcare, managing a mortgage, and other financial commitments, saving for retirement can easily fall by the wayside.

However, prioritising your pension now, even with competing demands, is crucial for a financially secure future. Here’s how to protect your retirement savings while managing your current responsibilities:

1. Prioritise but don’t neglect

Necessities like childcare and mortgage payments come first. However, when creating your budget, include a designated amount for your pension, even if it starts small. Treat it like any other essential bill you need to pay.

2. Automate your savings

Make “paying yourself first” effortless. Set up automatic contributions to your pension plan, so a fixed amount gets deducted from your paycheck each month before you even see it. This can ensure your savings grow consistently.

3. The power of small adjustments

Review your budget regularly. Look for areas where you can cut back on non-essential spending. Maybe it’s morning lattes or unused subscriptions. Even small tweaks can free up funds to contribute more to your pension.

4. Don’t miss out on free money

Many employers offer matching contributions to your pension, which is essentially free money. Make sure you’re contributing enough to maximise your employer match. It’s a significant boost to your retirement savings.

5. Leverage financial resources

Online retirement savings calculators can help you personalise your savings goals. These tools consider factors like your desired retirement age, income, and spending habits to estimate how much you need to save.

There are also various free budgeting tools and apps available. They can help you track your spending, identify areas for savings, and optimise your budget to accommodate essential expenses and your retirement needs.

Furthermore, Hilltop’s financial advisers can help you to create a personalised plan based on your specific financial situation and retirement goals. This can be especially helpful if you have complex financial needs.

6. Progress not perfection

Remember, even small increases in your pension contributions over time can have a significant cumulative effect in the long run. It’s important to focus on steady progress, rather than striving for perfection.

It can be helpful to keep a mental picture or vision board of your ideal retirement lifestyle in sight. Knowing what you’re working towards can be a powerful motivator to stay committed to your savings strategy.

Investment strategies in your 30s

“When it comes to investing in your 30s, the key is to start as early as you can and to let the effects of compounding do the heavy lifting,” says Paul Miller, Chartered Financial Adviser at Hilltop Financial Planning.

“The earlier you start, the less you will need to contribute each month and the more manageable it becomes.”

To illustrate Paul’s point, let’s look at some examples of how this might look in real life. This illustration below is based on a regular monthly contribution of £100 and an annual rate of return of 5% after charges:

A) If you started saving for retirement at age 30 on these terms, over a 30-year term you could save £83,381.27 with only £36,000 invested. The additional £47,381.27 would come exclusively from investment returns.

B) If you delayed 9 years and started saving at age 39, over a reduced term of 21 years you would save £44,488.94 with £25,200 invested. Only £19,288.94 of this would come from investment returns – a noticeable difference.

“Pension contributions also benefit from tax relief at your highest rate, with HMRC rewarding your efforts,” Paul adds. “So you’ll have this in addition to the above, further accelerating your progress.

“It’s also worth noting at this age that your pension savings will be locked away for a number of years before you can access them. So it’s always sensible to ensure you have an emergency reserve readily available before you consider making additional pension contributions.

“I suggest starting small if you’re not already setting aside for your retirement. Decide on an amount you know you can comfortably afford each month and don’t forget to review this whenever your household income changes.

“Remember, you can also make additional lump sum contributions if there is an opportunity over time.”

Start saving for retirement at 30 and beyond with Hilltop

We’re often asked, “is 30 too late to start saving for retirement?” The answer is a resounding: no. Although you’re likely to have various responsibilities pulling on your finances, it’s important to prioritise your pension savings.

Protecting your pension savings in your 30s is about striking a balance between present needs and future security. By implementing these strategies, you can ensure a comfortable and financially secure retirement down the line.

Remember, starting early, even with small amounts, can make a world of difference thanks to the power of compound interest. Take action today to secure your future financial well-being and a brighter retirement.

For retirement planning and pension advice, don’t hesitate to contact us on 0161 413 7051.