Worried about your retirement? Here are two pieces of pension planning advice

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Having enough money to enjoy a comfortable retirement has to be high on the list of priorities for anyone, and so I present here two tips to get you there. One is eye-rollingly obvious but needs repeating, the other one concerns something that is often overlooked.

Don’t delay

‘Starting saving as soon as you can’ is the single most important piece of advice I can give you for your future self. It may be easier to see the size of the benefits of starting early by looking at the following table, which shows how big a pot you would have at age 65 if you put aside £1,000 a year and earn a 5% return, depending on when you start saving for retirement.

Age when retirement saving starts

Retirement pot at age 65









You will retire richer if you start earlier: 1.8 times richer if you start at age 25 vs 35, two times richer if you start saving at 35 rather than waiting until you are 45, and 2.6 times richer if you start saving at 45 compared with 55. You are also less likely to take on excessive risk if you start early because, for whatever number you have in mind for your retirement pot, you will need a lower annual return to reach it, and lower returns are usually achieved with less risk.

If you are worried you have left it too late, then stop worrying now. Starting ‘early’ can also mean starting now, whatever your age. Start budgeting and put aside as much as you can. If you are starting later, then trying to save a little more is your best strategy. Again, this sounds obvious, but consider that saving £1,250 per year when you are 35 and earning a 5% return leaves you with £87,201: that’s £17,000 more than if you set aside £1,000 a year.

Fight inertia

The earlier you start, the more risk (and higher expected returns) you can accept. Stocks are historically more risky than bonds. Younger savers can tolerate having more of their funds invested in stocks because they have more time to recover from any losses that happen, and stay invested to get those higher returns before they access their pots.

So someone in their 20s might start with 90% in stocks and 10% in bonds, but over time it is recommended that stock allocations are reduced. To do this is as simple as putting increasing amounts of your annual savings into bonds, but people don’t do it. You can read about how I like to start thinking about stock and bond allocations here.

I have cautioned against taking on excessive risk when starting to save later (such as a stock and bond allocation only appropriate for someone years younger). You can end up in this situation by having an appropriately risky portfolio in your 30s, but despite diligently saving, never adjusting your stock-to-bond ratio.

Personally, I am aiming to end up with a portfolio that is split 60/40 in favour of stocks when I retire, and so every year I put a little more into bonds to nudge it slowly in this direction. I choose 60/40 because of the findings of Javier Estrada, presented in his paper of October 26 2015, called Buffett’s Asset Allocation Advice: Take it … With a Twist. He found that such a portfolio never failed to last 30 years when drawing 4% (adjusted for inflation) from it each year.

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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.