The real cost of delaying your pension

According to a survey in Pensions Age Magazine, nearly 7 million people in the UK aged 50 or over don’t have a private pension. For most of them - and maybe for you - there’s always a reason not to start saving.

Something else to do, something else to buy. After all, it’s only a year. How much could a year possibly cost you?

And then that argument changes from “what’s the harm in not starting yet?” to “is it even worth it?” 

Is it worth starting a pension at 40?

We have people asking us if it’s worth starting a pension at 40, 50, even 60. The answer’s always yes.

A quick glance at our pension calculator tells them it’s always worth it. But it’s worth more the earlier you begin.

It’s one thing being told you need to start saving for retirement. It’s another thing entirely seeing the cold hard data in front of you.

We can tell you that it’s worth starting a pension at 20 but you need to see the numbers for yourself.

The earlier you start, the more you’ll have in your pot

It sounds obvious. The longer you’re saving, the more you’ll save. But that’s not all there is to it.

Sure, if you save the same amount for ten years, you’ll put away half as much as you would if you saved for 20 years. But that’s what would happen if you put your savings under your mattress.

With pensions, it’s different. 

It’s all about earning interest. Every single year, you earn more and more interest on the savings you already have put away. And on the interest you’ve already earned. So saving for 20 years won’t give you twice as much as saving for ten. It could give you far more. 

This isn’t the place to try and explain compound interest - believe us, even Albert Einstein didn’t have an explanation that wouldn’t take you half an hour to read. But he did say this:

“Compound interest is the eighth wonder of the world. He who understands it, earns it.”

Now obviously we wouldn’t dare try and correct a genius like Einstein, but we’d probably add something to his quote. 

“He who takes out a pension, earns it.”

You don’t need to understand interest to benefit from it. You just need to know it exists, and that a pension helps you benefit from it.

The cost of a delay - how much do you need to save each month to hit your goal?

So let’s say you delay your pension by a year. Or five years. Or ten. 

That doesn’t mean you can’t hit your savings goals. It simply means you’ll have to earn and contribute the money you’d otherwise get from compound interest. 

Let’s set a really ambitious savings goal. One million pounds. Go on, dream big. Let’s retire as a millionaire.

Before we share the numbers, let’s just give you the context for this. We’ll assume you’re retiring at 65 and getting 20% tax relief on all your contributions. We’ll use the FCA’s high growth figure of 8% (which doesn’t factor in fees or inflation) to work out how much your money could grow.

Basically, these are round numbers that will give you an indication of costs - we can’t carve the numbers in stone and say “do this, you WILL retire with a million pound pot.”

Still with us? Great. Here’s what it’d cost you to retire as a millionaire at various ages:

Those figures are pretty stark.

Delay your pension by ten years from 20 to 30? You’ll pay over £63,000 more to build up the same size of pension pot.

Delay it by ten years from 30 to 40? That’s now over £106,000 you’ll need to pay in yourself.

And that number gets higher the longer you wait.

Once you get into your 50s and 60s, that million pound goal starts to require some seriously large four figure monthly contributions, so you have to revise your targets and aim lower.

The real cost of delaying your pension isn’t just financial. It’s having to lower your ambitions and settle for a less comfortable, less rewarding retirement. And you can’t really put a value on that.

The bottom line:

Delaying your pension by one year will cost you more than just money. It’ll cost you the opportunity for a great, well-earned retirement.

Use our UK pension calculator to see how much you’ll save if you don’t delay another day

No matter how old you are, it’s never too late to start saving for retirement. Or too soon!

It’s always worth starting a pension, and that begins with working out how much your pension pot will be worth, and how much you should be saving to reach your goals.

That only takes 30 seconds when you use mynestegg’s easy pension calculator. 

Don’t leave it another year. Take control of your future and start saving today.

We’re always looking to make saving simpler. To learn more about how to set goals, save for the future, or choose the right pension or ISA, visit the mynestegg Knowledge Hub.