Personal finance experts have been warning for years that we Britons aren’t saving enough to get us through a rainy day, much less to fund our retirement. To make things worse, many of us are underestimating our longevity. Barring accidents or unexpected illness, a man who is 65 today can expect to live until the age of 86.6 years old, and a woman of the same age until 89.3. For people who are currently 45 the longevity if not the financial outlook is even better: men’s life expectancy is 88.9 and women’s is 91.5. That adds up to a lot of years to be scrambling for money if the retirement pot isn’t adequate. Fortunately there is help available for prospective savers.
It’s only too late if you don’t start now
Obviously, if you’re younger you have more time to build up a good solid nest egg. But youth is also a disadvantage, because humans are simply not psychologically equipped to project very far into the future. When you’re 25, age 65 seems like an eternity away, and many 25-year-olds live accordingly. Once you’re 65, though, you wonder where the time went, and you may find yourself panicking because you don’t have enough money to cover even the most basic living expenses.
Regardless of your present age, it’s never too late (or too early) to start a savings plan of some type. Choosing the best vehicle for your savings can be a challenge, particularly with interest rates currently being so low, but you have to start somewhere. First sit down and figure out a reasonable savings goal, and calculate what your return will be. Whether you choose a bank or an investment fund of some sort, this will not be a get-rich-quick scheme. But over time, and with steady and consistent contributions to the pot, you might end up with more money than you could have imagined.
But it may take some self-discipline and a willingness to cut corners a little bit. Although many people are struggling just to pay the bills and don’t have a lot of money left over for saving, everyone should make it a priority to save as much as possible, even if it’s just a few pounds a week. Figure out what you can eliminate from your life without depriving yourself, and be willing to give up a few (though not all) indulgences. You might be surprised by what you can give up without compromising your quality of life.
New government schemes can help too
In April of 2016, the government enacted a new personal savings allowance that allows basic-rate taxpayers to earn up to £1,000 interest on their savings tax-free. Higher rate taxpayers can earn up to £500 in tax-free interest under the programme. For savers who have felt the sting of years of abysmally low interest rates on their savings pot, every little bit of relief helps. With the savings tucked away in an Isa (Individual Savings Account), even savers whose current interest earnings are modest can look forward to relief later on, when the interest rates inevitably rise. As the government allows increasing flexibility in managing those Isas, the benefits of the allowance will likely be even greater.
For younger savers, Lisa could be their new best friend
Who is this Lisa, and why is everyone talking about her? Well, “she” is not a person at all, but a recently announced Lifetime Isa, touted by Chancellor George Osborne as a giveaway for “the next generation”.
The most striking feature of the new Lisa is that the government will pay a 25 percent bonus every year on up to £4,000 placed in the accounts by savers between the ages of 18 and 40. Before millennials get all excited about the giveaway, they should know that the accounts can only be used to purchase their first home or left untouched until they reach the age of 60. Plus, the benefits will be felt more by those savers who are higher up on the economic food chain, or whose parents can afford to make significant contributions to their children’s savings pot. Even with the limitations on the new programmes, anything that encourages saving – especially getting started when you’re still young and have more years to build up a good retirement pot – has to be considered a good thing.
The increase in life expectancy in the UK is mostly good news. But as the old saying goes, it’s not the years in your life that count; it’s the life in your years. And without money to cover the necessities and the occasional luxury, one cannot really expect to have a reasonable quality of life. The savings deficit is a real problem for us as a nation and as individuals, and it’s not one that will go away if we simply ignore it. So get busy, and get saving.