25 and panicking about pensions!

[pensionconf]

Hi everyone,

Hope this is an okay place to post!

To preface, I’m a very anxious person so I am sure part of this is me worrying but I’d just like some advice :)

I’m 25 and currently have the following retirement savings:

£7.5k in a Moneybox pension - this was all my tiny workplace pensions from supermarket jobs etc that I merged together. I do not contribute to this

£4k in a workplace pension - I pay 5% of my wage into this and my employer pays 3%. I’m on 25k so this is roughly £100 a month going in

£200 in a Lifetime ISA - I pay £5 a month into this. This is really a backup option in case my private pension age goes above 60 and I can’t take it when I’d like to (I already own my house so have to use this for retirement!)

£500 in a S&S ISA - not a specific retirement thing but I’ve ’earmarked it’ to not be touched until then. I pay £20 a month into this. Similar idea to above that I can use this whenever I want so won’t have to wait until a designated retirement age that might be high when I get there!

I’m worried that this isn’t very much to have at my age, when I attempted some googling it implied I’m well below what I should have to be able to retire comfortably!

Most of my £25k salary is accounted for (mortgage has gone up recently!) so it’s not as simple as throwing more money somewhere.

My vague idea was to stop paying into my LISA for now once it had maybe £1k in it, as this one is probably the least flexible? Then upping my workplace contributions. But maybe that’s not a good idea.

I am on a course at work that will dramatically increase my salary once it’s finished, but that is a few years away. Of course at that point I can afford to put quite a bit more into the workplace pension etc as I understand that’s the one that has the best tax benefits?

Any advice or tips are gratefully appreciated!

Please try not to be anxious about it. You have something. That is more than most have. Just keep contributing steadily and it will grow. You have another 40 years of working yet and that is plenty of time for it to compound and grow. There will be fluctuations along the way - potentially some massive ones - but the key is to ride out the storm and let it gradually grow rather than react to each world event.

I’m 47 and have none of this so you’re doing better than me

Thank you! I know I am partly overthinking but it’s hard when the news is so doom and gloom

That is entirely normal at your age.

You will likely find that you are able to save more as you get older if you buy a property and earn more. At the same stage I had nothing like you have and didn't buy a house until my mid 30s, but should eventually have enough in retirement.

At your age I never thought it would be possible to buy a home and wasn't remotely aware of pensions other than that was what national insurance was for. The Internet is good for financial awareness but bad for the temptation to compare and think you are doing badly when you are not.

Your generation has a lot of disadvantages but the one plus is that you have had auto enrolment throughout your working life and that will allow you to save.

I am fortunate enough to have bought a property which I know will definitely be a huge help in the future with retirement as we will have much reduced housing costs

Its so hard to know what is good advice to follow and what is just put out there to scare you!

You are doing great!

With pensions the best thing is to contribute as much as your employer will match and then forget all about it.

Keep a spreadsheet with the pension account number, place of work and value each year at the start of the year. That way as you move around in jobs, you won’t lose your pensions by forgetting them. You can also roll old pensions into new work place pensions, if you want to.

So the strategy is two fold:

1. set it and forget it (at the highest matching rate)
2. keep track of them all as you job hop

Do this and forget all about it.

In my early 30s, I looked at my pension and despaired. I had about £35k. It looked hopeless. I am now in my mid-50s with £500k. It’s a bit like a snow ball rolling down a hill. It takes a while to get going, but if you save early, which you are, it really speeds up in your late 40s. All you have to do is save a little bit each month steadily.

Final thought, you say you have a mortgage. If you own a home, does a LISA make sense for you?

Thank you! This is really helpful. My employer won’t pay any more than 3% in regardless of my contributions!

I have left my old workplace pensions in the Moneybox one as I felt like I didn’t want to have all my eggs in one basket so to speak. I thought if it’s all just in one thing and that goes south then it’s all my money, so it’s best to have some separate!

I have the LISA as I was worried that as state pension age goes up and up and up, so does private pension age. I certainly don’t want to work at 70 and so I thought the fact a LISA can be accessed at 60 (and that’s locked in) is a good backup option!

I suppose I’m killing two birds with one stone with that idea though by having the LISA and the S&S ISA, which is why I was thinking when my LISA has maybe £1k in i’ll try and do more into S&S

It sounds like you have a good spread of products, and by putting in little and often now it will accumulate. Having a property at 25 is a big bonus. Even if you then move to something bigger in due course, you are building equity and not paying someone else's mortgage!

Pensions and savings compound over time, so although they might not seem much now, they will grow, especially as you keep adding to them monthly. And when your salary goes up in a few years, you could try to continue to live on roughly the same amount and put the extra into savings/pension. Or at least a big chunk of it.

The best thing to try & do is get a public sector job, the pensions are far better there.

3% is low. As you move around in your career, hopefully some will match a bit more and that really helps.

Everything you are doing is good. Just create a master spreadsheet for yourself with all of your account details. It may sound unbelievable now, but as time goes by and you get busy with life, it’s easy to lose track.

I have heard good things about this free course:

therebelschool.com/programmes/finance/

It’s a shame really as I actually love my job and the people there etc etc, so the pension is a let down!

I briefly worked in a bank that paid 12% which was very nice! But the job itself was so awful it wasn’t worth it

Also the fact you are aware of and thinking about such things at 25 is a big win in itself! Lots of people get to their 40s and 50s and realise they don't have a plan, or haven't got as much in their workplace pension as they assumed or could have had!

You’re 25 and have £12k, I’d say that’s pretty good. When I was 25 I didn’t have a clue how much was in my pension, I had only been in work 4 years and was spending over 50% of my salary on rent, so it definitely wasn’t much. Now I am 38 and it is £850k. If you know for a fact that your salary is going up dramatically after your course then you can commit to increasing your contributions then. There is really no point wasting your mid 20s scrimping and saving if you know you’re due a big pay rise. The sooner you can pay in the better because of compound interest, but a few years of contributing 8% instead of 20% won’t make or break your retirement. At your age it’s not worth stressing over. Just commit to paying more in after your pay rise.

I'm echoing everyone else, you're doing brilliantly. You have more knowledge and more financial security than the majority of 25 year olds.

2 things you could think about

First: Have a look at the funds that you're invested in. Many workplace pensions' default funds are very conservative - Low risk, low return. In the vast majority of cases you are able to choose different fund(s) within your existing workplace pensions. With your age in mind, the standard advice would be to choose (moderate to) higher risk, higher return (depending on your own tolerance for volatility and risk)
This advice also applies to your S+S ISA and LISA. If you don't understand what funds are or the difference between volatility and risk, take some time to learn. It will benefit you massively.

1. Second

Do you have an emergency fund to cover unexpected house/car repairs, loss of job, any unexpected large bill, etc. Priorise this so you don't ever need to go into debt. Start by saving £1k, then try to get it to around £10k in time. Keep this in an easy access, high interest account

It might not feel it but you are doing really well to get into the habit of saving and investing at your age.

The power of compound interest is incredible. There's some websites which will calculate for you what your £20 a month now will grow into when you're 60.

I didn't start properly saving until I was 35 and I feel I have done well to get where I am in a decade now I'm 45.

You'll look back when you're 35 and be really pleased with yourself, believe me and by the time you're 45 you'll be miss moneybags.

I’m 26 and think I have about £40k so far however I earn more than you and my employer contributes more so I think you’re doing well

Have a look at Pension Wise. A free government backed advice and information site.
Primarily for over 50s, but there are calculator tools and lots of information on there.

"I already own my house so have to use this for retirement!"

Own outright or are buying with mortgage and will own it by retirement?

You’re 40 years away from retirement. Some people never get there. You’re doing fine and I think you know that.

Don't worry too much. Just make sure you get the maximum you can from your employer, so if they match up to 3% for example, make sure you pay in 3%. I didn't do this until my early forties and kicking myself as I would have double now if I had, and it's FREE MONEY!

Own with a mortgage that will finish at age 55! But the LISA therefore has to be used for retirement and it now can’t be used for first home purchase

This feels a little harsh in tone? I’m just asking for some advice and reassurance!

This is really helpful, thank you! I will have a look at the funds. I know my S&S ISA is ‘adventurous’ so perhaps I can do something similar for my pension. My idea is to be reasonably high risk now and obviously reduce the risk in, say, 20-30 years

@LavenderDiscosorry I didn’t answer the second question!

I do have a modest emergency fund of £2.5k which I also add to each month with a goal of building this to £10k! Also trying to save for a wedding too 🤣 so lots of financial planning happening!!

Do you have decent life insurance with critical illness? If you don’t then prioritise this now as it’ll be far far cheaper to start at your age.

I got cancer at 43. Due to decent health insurance I got a payout of £110k even though I’m cancer free now and all treatment finished.

if it wasn’t for that we would have lost our house.

mine was good because I started it in my 20’s. If you start when you’re older, it’s far more expensive!