Test Pension at 40

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  1. Auto-enrolment
  2. Equity Release

Have you ever asked yourself: “How big should my pension pot be at 40?” If so, within this article we aim to help you answer that question.

Retirement might seem a long way off, but the clock is ticking. At 40, you’ve probably started to think about your pension and whether it’s time to start making bigger contributions or set up a pension if you haven’t done already.

If you are someone who has been making pension contributions for a number of years and you’ve saved up a substantial amount into your pension pot by the time you hit 40, well done! However, do you have enough money to live off? Are you going to be able to sustain your lifestyle without working? Let’s find out below!

If of course you’d rather skip the reading and contact a pension advisor straight away you should give us a call on 03300 562 218 or email [email protected]

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SPEAK TO A PENSION ADVISOR TODAY

Average pension pot

Based on the UK average, it is said that £260,000 is enough for a comfortable pension at 40.

If you’ve suddenly realised that your pension is much lower than this, don’t panic. We can help you work out ways to increase your pension pot below. 

How big should my pension pot be at 40?

Firstly, it’s important to note that this is a difficult question to answer because this is totally dependent on your lifestyle and spending habits. For example, you might be someone that likes to spend their money lavishly on cars, holidays and meals out.

If this sounds like you, then obviously to sustain this lifestyle you will need more money in your pension pot at 40 than you probably think. On the other hand, If you live a very modest and budget-friendly lifestyle, your pension pot may not need to be as big as you think.

UK pension pot statistics

  • There are about 12 million pensioners in the UK.
  • In 2018/19, the average State Pension amount in the UK was £176 a week.
  • The earliest age at which you can usually withdraw cash from your pension fund is 55.
  • In 2019, the average age of retirement in Britain was 65 for men and 64 for women.
  • The average pension pot at 65 in the UK is currently £61,897
  • 17% of Brits aged over 55 have no private pension savings.
  • A single person’s full new State Pension was £175.20 a week in 2019/20.
  • In 2017/18, 10.4 million individuals were contributing to a personal pension in the UK.
  • Over three-quarters of UK jobholders were members of a workplace pension scheme in 2019.
  • The total private pension wealth in Great Britain from April 2016 to March 2018 was £6.1 trillion.

Make the most of your Pension

There are a number of different ways that can help maximise your pension pot at 40 or any age for that matter.

If you want to have the biggest pension possible so you’re able to retire on a beach drinking pina colada’s rather than struggling to scrap a few pennies together to buy your basic groceries then it’s important you take action now.

How big should my pension pot be at 40
  1. Auto-enrolment scheme

 The auto-enrolment pension scheme was introduced back in 2012 as a way to help employees put more money towards their pensions. This scheme requires your employer to add to your pension pot each month. Typically you will be required to contribute a minimum of 5% and your employer will contribute a minimum of 3%. 

This pension scheme isn’t for everyone, as everyone has different circumstances. But if you are looking for an easy and stress-free way to save more money for your retirement, then this could be a great option for you.

Auto-enrolment pension scheme criteria

In order to be eligible for this scheme there are certain criteria that must be met. Please see below. 

  • You work in the UK (including seafarers residing in the UK)
  • You aren’t already in a suitable workplace pension scheme
  • You are at least 22 years old, but under State Pension age
  • You earn more than £10,000 a year for the tax year 2022/23.

As long as you meet these auto enrolment conditions, you’ll also be covered if:

  • You’re on a short-term contract
  • An agency pays your wages, or
  • You’re away on maternity, adoption or carer’s leave.

If you earn less than £10,000, but above £6,240 (for the tax year 2022/23), your employer doesn’t have to automatically enrol you into a scheme. However, you can still ask to join – your employer can’t refuse and must make contributions for you.

2. Equity release

If you are still able to obtain a mortgage, you could consider remortgaging your property to release equity then use this lump sum to top up your pension pot. Generally speaking, the more money that is in your pension pot, the more compounding interest you will earn. 

Although this will mean you have a mortgage whilst in retirement, the compounding internet you earn from your pension may outweigh this.

Of course, this may not be the best option for everyone so it’s important you speak with a financial adviser who can help you decide which option is best for you.

If this sounds like you, then obviously to sustain this lifestyle you will need more money in your pension pot at 40 than you probably think. On the other hand, If you live a very modest and budget-friendly lifestyle, your pension pot may not need to be as big as you think.

3. Contribute more to your pension

Be honest with yourself? Are you really contributing as much as you possibly can to your pension pot? Our guess is probably not.

Simply contributing more to your pension is a really simple but effective option if you want to make the most out of your pension. If you’re worried that you can’t do this, why not try cutting down on your spending habits.

Alternatively, you could just pick up some extra hours at work. Although this might not be the solution you envisioned, it may be worthwhile in the long term when you have more money and less financial stress when you retire.

Am I saving enough for a good pension pot?

Half your age pension rule

If you have been wandering if you’re saving enough money towards retirement and you’re not sure how much you’ll need, here’s a quick and easy way to work it out. 

According to HSBC, to calculate how much you should be saving towards your pension, divide your age by two, then use this figure as the percentage of your salary you should aim to be saving each year.

This rule of thumb has been recommended by many financial experts. If you begin saving at age 20, you should aim to be putting away 10% of your annual income; if you begin at 30, 15% of your income is recommended; and so forth.

So, therefore, It is suggested that at the age of 40, you should really be putting 20% of your wages into your pension pot. This is a 5% increase up from the suggested amount in your thirties. 

Of course, this percentage is just a recommendation and every circumstance is different. If you are able to save more than 20% then even better. As mentioned above, the more money you’re able to put into your pension pot, the more compounding interest you will earn. 

SPEAK TO A PENSION ADVISOR TODAY

Book an Appointment with a Pension Adviser Today

For further advice, please get in contact and we will be more than happy to help you understand your current financial position. The more you are able to put away now means a load off your mind for later.

To speak with a pension advisor today simple book an appointment online or give us a call on 03300 562 218 or send an email to [email protected]

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

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