Your money for your life – Ollie reveals a pension plan
Being old can work out to be expensive, but Ollie has seen a way of cushioning the blow thanks to proper pension planning whilst there’s still the time – and income – to do it.
“Being old looks as though it’s going to be very expensive,” mused Ollie, pushing a pencil behind his ear and peering at the notebook next to his laptop. “I’m not sure we can afford it.”
“But we won’t be old for years, so why do we need to worry about it now?,” wondered his wife Lizzie as she prepared a meal for their baby son Jack. “Mind you, on some mornings I feel about 90 years old already,” she added ruefully.
“Because, my lovely, you or I, or probably both of us, will need to be a much better expense manager than we’ve ever been if we want the same lifestyle that Grandma Lorna and Grandad Ron are enjoying in their retirement. Provision for old age is changing, and we need to get ready for it now.”
“That was as clear as mud,” she said. “What does it mean?”
“In general people are in better health than they used to be. As a nation we’re living longer, which means that we’re looking for retirement income for getting on for 30 years – for some people that’s as long as they’ve been working. Now, there was probably a time when the state pension would be enough to live on for a much shorter retirement. By the time we retire, there probably won’t be a state pension at all, and we’ll have to look after ourselves much more. That’s why companies have to do all this work to auto-enrol employees into pension schemes.”
“To be honest, Banks, it’s not getting any clearer,” said Lizzie, wiping fruit puree from Jack’s chin.
“OK, let’s forget the why. Trust me when I say that we need to start saving for our old age now, and it’s as important as paying the mortgage. There’s a really good article about it on the internet. It explains the why and the how, not to mention the ‘how much’, and it really adds up,” he said.
How much you should save for a pension
“Did you know, there’s a rule of thumb that says you should divide your age by two, and that’s the percentage of your income you should be putting into a pension?” He looked at Lizzie. “I’m 28. Divide that by two, and we’re being advised to save 14% into a pension.”
Lizzie frowned at him. “That’s a lot,” she said.
“It is a lot. I’m not sure what the sum should be if there are two of us, but you can be sure it won’t be tell us that we need to save less.
“The bottom line is that I’ve been auto-enrolled into a pension scheme at work, and it’s that, that started me thinking about it – but we should look at ways of finding more money to put aside. If we do, then we’ll be better off, and we’ll be more able to do things for Alice and Jack, like help them with university tuition fees, for a start.”
“So”, said Lizzie, as pragmatic as ever. “We need to turn to the trusty Solo Expenses expense tracking software again to have a closer look at our finances and see what we can cut back on, then?”
“Ah,” said Ollie, snatching the pencil from behind his ear, and pointing to his notepad. “Not necessarily. Look at these figures. I’m getting a promotion at work, and it means I’ll be earning more money. But because of what Solo Expenses is doing for us in terms of our expense management, we’re pretty comfortable. Put it another way; if I wasn’t getting the promotion, then we wouldn’t be worried about money, thanks to the expense software.
“Therefore, the new job brings new money that we don’t need right now, and it’s 15% – more than we need to save. Therefore, I think we should arrange for it to go straight into the pension pot. What do you say?”
Lizzie nodded. “I always said you were more than a pretty face, Banks. I suppose it’s like any kind of savings, really – spend it now, or spend it later. Either way, it’s ours to spend, one way or another.
“Show me that web site about pensions; I’d like to read it,” she added. “You can change Jack’s nappy while I’m doing it.”