For many people, there’s something at best, complicated, and at worst tedious about pensions. Why worry about something that may be still many years away? After all, you only live once and you could get hit by the proverbial bus tomorrow.

So, when should you start thinking about your retirement finances?

The simple answer is the sooner, the better. If the aim is to get the most out of life, throughout your entire life, then you need to get ahead of the game. Because the more time you give your retirement investments, the better funded your retirement will likely be.

The chart below illustrates just how big an impact saving a little early and often can make to your retirement wealth. It shows how £200 placed into a pension scheme each month by a basic rate taxpayer might grow by the time that person retired if they started at different points in their working lives.  Save even more, and the potential differences get bigger.

The benefits of saving early and often 


Source: Vanguard calculations, illustrative only. Notes: Assumes an average annual return of 5%, costs of 0.22% based on the Vanguard range of LifeStrategy funds, and tax relief at the basic rate.

As you can see, by starting young our hypothetical investor ends up with around £500,000. But by delaying by less than 10 years they end up with some £200,000 less. That’s the impact of compounding, which really benefits those who start early.

Difficult decisions

The brutal fact is the state pension pays a lot less than the minimum wage1. That’s not to say that it can’t add up to a significant sum when coupled with another income. However, because we’re living longer, these additional pension savings need to stretch further.

Luckily, our costs are likely to be lower once we’re retired. We tend to spend less – whether that’s because we no longer need to commute, save for retirement, pay for large mortgages or children, or other reasons. And many of us these days are enrolled automatically into workplace pensions from the age of 22, in which case means a minimum 5% of our salaries goes into one, with a minimum 3% added by our employers. So, it’s not as bad as it could be.

But will the money accumulated this way be enough? Can you be sure of a comfortable retirement? You only live once, after all.

Most company schemes these days are “defined contribution” (DC) rather than “defined benefit” (DB) pensions2. They don’t pay a guaranteed retirement income for life. Instead, your pot of money grows depending on what is paid in and how much is made from your investments. When the time comes to retire, it’s then up to you how you use it – whether that means drawing an income, buying an annuity (which pays a guaranteed regular income), taking out lump sums, or a mix of these.

To give you a hint of what this might mean in practice, consider that 8% of a £30,000 to £50,000 annual salary paid into a workplace pension each year would – under the same set of return assumptions as our chart earlier – grow to somewhere between £280,000 and £470,000 over 40 years. Ask yourself: to what extent might this sum of money supplement your basic state pension and for how long?

Make a back-of-the-envelope calculation, based on when you think you might like to retire and how long you think you might have to rely on this pot of money for income.   

So many questions

So how can you find whether your pension provisions – and remember these may be scattered across different schemes due to the twists and turns in your career and include individual savings accounts (ISAs) and other assets – will be enough to deliver the kind of retirement you want for yourself?

Many of us don’t think about such things until, say, a decade before our planned retirement. But what if you’re in your 30s, 40s and 50s? How much visibility do you have over your projected retirement finances?

And what if you are – or have been – self-employed, with no workplace pension schemes to lean on?

This is where Vanguard Personal Financial Planning can help with a personalised financial plan – one shaped by your retirement goal that is based on a comprehensive analysis of your individual circumstances and different assets and is then managed and monitored by us on your behalf.

Crucially, this plan will tell you if you are on track to have the kind of income in retirement that you were hoping to have. Great news if you are, but if not, you will be armed with that knowledge and equipped to do something about it.

Life begins at 55, 60, 65, 70…

There’s a related issue too, something else a financial plan can help with by embedding it into your retirement goal – because it’s not just about your targeted income but also the age at which you wish to retire.

It’s possible that many of us may have to work for longer than we’d hoped due to lower expected returns or unexpected setbacks in our careers. Some of us may even want work to longer out of choice, or perhaps supplement our retirement incomes with part-time or freelance work.

But for those who are fortunate enough to have accumulated sufficient funds, and planned it that way, it may be possible to retire sooner.

As it stands, the state pension doesn’t kick-in until a person reaches their late 60s4. In contrast, all DC pensions, including the Vanguard Personal Pension, can be accessed from as young as 55.

That opens a whole new world of possibilities5.

Clearly, saving for your retirement is one of the most important financial decisions you’ll ever make – one with the potential to define your lifestyle for 25-30 years or more.

It’s a complex one due to the many variables involved. Part 1 and Part 2 of our recent Retirement Series drilled down into some of these issues, to give you a flavour of the kinds of tough decisions you need to consider.

But you don’t have to do it alone. Vanguard Personal Financial Planning can help by taking away the pressure of having to think too much about it whilst giving you peace of mind knowing your retirement finances are in expert hands and remain on track to meet your retirement goal.

After all, you only live once.


1 The full new State Pension is £179.60 per week (or £9,339.2 a year). The National Minimum Wage for people aged 23 and over is £8.91, which works out as £356.4 per week for a five-day week, eight-hour day.

2 Employee workplace pensions in the UK: 2019 provisional and 2018 final results.

3 Given automatic enrolment was only phased in from 2012.

4 Currently 66 years rising to 68 for anyone born after 5 April 1978.

5 Put it this way: retiring at 55, broadly speaking, means having to work for less than 60% of your adult life compared to the near-80% you’ll have to work if you have no choice but to wait until you’re 68.It’s more like 54% instead of 74% if you factor in three years of higher education.

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