Iain Murray Guest Blog: Pay Day!


Many moons ago, someone said to me;

“There are two types of pensions – big ones and small ones.  Which would you like?”

It’s glib, and (maybe) a bit funny, but it is also essentially true.  Back in the day, pensions were something that employers sorted out for you, or you would be looking at relying on the state pension.  With the dramatic reduction in Final Salary Pension schemes on offer, and a pushing back of the State Retirement Age, the onus is more and more on the individual.

The problem is, not enough people know that, or indeed care right now.  This is a problem for later.  What’s more important, money now, or money later?  Many go for the money now option, and I have sympathy with this.  It’s a bit hard to think about your retirement years when you are worrying about paying the mortgage this month.  The issue is, if you wait, then chances are it will be too late to do much about it.

How about instead of thinking of it in terms of “how many years to retirement”, start thinking “how many pay days until I retire?”.

That might need explaining.  Here’s what I mean:

A person who wants to retire at age 65 has the following number of pay days remaining (years to retirement x 12, assuming salary paid monthly)

  • Age 20 = 540
  • Age 30 = 420
  • Age 40 = 300
  • Age 50 = 180
  • Age 60 = 60

Now, life expectancy is tricky as it’s a moving feast and actually differs for each age group and sex, so to keep things simple, lets assume that everyone on that list lives to 85, that means that their pension will need to pay for 20 years.  In other words, retirement is made up of 240 pay days.

240 Pay Days.

If you start putting something aside at age 20, that means that a fairly small amount of money per month could give you a reasonable lump sum by age 65, as you have lots of pay days to go, plus you have the potential power of compounding behind you.  45 years of it.  Great!

However, that’s not the same picture for the 50, or 60 year old.  The later you leave it, the fewer pay days you have left and the more money you will need to save on a monthly basis to get any where near the same result as investing early.  A 40 year old has about 300 pay days in order to save up enough money to support their retirement of 240 pay days.

Retirement isn’t just about pensions, but about generating an income, and there are a great many ways of achieving this.  Continuing to work is one of them.
How many people will opt for that?  How many people won’t have a choice?  If you want flexibility and choice then the time is now; get advice as to how to improve your lot for when the times comes for your retirement pay days.

Investments can fluctuate in value and investors may not get back the amount they invest. Tax treatment is dependent upon individual circumstances and may be subject to change in the future.  Past performance is not a reliable indicator or future returns.