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Why do I need a Pension?

Why do I need a Pension?
Published:  22 Feb at 7 PM
Unless you have a lot of money, pensions are a vital way of ensuring that you have enough money to live-off when you retire. With men being able to look forward to around sixteen years of retirement on average considering the current retirement age of 65 and women lucky enough to have an average of twenty six years of retirement after 60, it is obviously essential that you save enough and in the right way. And that’s just the most recent figures, with advances in healthcare and technology, it will almost definitely be higher by the time we reach retirement.

Some people may be of the opinion that they don’t need to waste their hard-earned savings on putting it to one side for later life when they will be given a pension by the government anyway. But with the government funded pension being around £100 a week without means testing, if you leave it until you reach retirement you will be looking at quite a struggle to get by, especially if you are still paying a mortgage or any other loans.

It is also important to remember that should you wish to put money aside in a pension plan, their are big tax advantages to doing so - often a rarity in the UK these days, not to mention the benefits of compound interest. For example, if you had just turned 65 and had been putting £50 a month away since you were just 20, saving it up in cash you’d have about £27,000 in savings. However, had you decided to put your £50 a month into a pension which would average a return of around 7% (based on the fact that the stock markets have grown around 8% per annum for the previous eighty years), you would now have £190,000 in savings. Obviously this wouldn’t include all the fees you would be required to pay over the course of the investment but you can see the potential benefit of compound interest!

Most young people don’t think about their pensions and understandably so. It’s a difficult task to try and make yourself put aside your hard earned cash for something that will happen in 40 years. But the sooner you start saving, the more you will end up having - even if it’s only £50 a month. Every month you miss can make a significant difference. One monthly installment of £50 would lose you £157.50 worth of interest over the course of the 40 years so the earlier you start, the more you will earn.

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