We all like to think that we'll be entering retirement with a solid pension pot, one that can furnish us with a decent income for the rest of our lives, but achieving that goal can be easier said than done. This is particularly the case for those who are already struggling to save sufficiently, yet research shows that even small changes can make a big difference to your eventual pension pot – potentially boosting your income by £10,000.
All it could take, says Scottish Widows, is cutting back on those little luxuries that we all treat ourselves to on a daily basis. Their research found that the average consumer spends £124 each month on everyday luxuries such as takeaways, taxis, ready meals, coffee shop trips and other incidentals, yet 32% say they simply can't afford to save more than they already do.
This could be compounded by the fact that respondents typically underestimate how much they spend on such luxuries by £74 a month, while 12% don't track their incidental spending at all. If they took charge of their budgets to give up those tiny treats and save the money instead, it could make a world of difference.
Scottish Widows' calculations show that a pension saver who cuts back on this expenditure could boost their annual income by much as £9,853 in retirement. This is based on a 22-year-old who's planning to retire at 68 putting an extra £124 into their pension each month, with a matching contribution from their employer, allowing for inflation and assuming their contributions increase in line with earnings and no lump sum is taken at retirement. It's a lot of conditions, granted, but it still highlights the potential benefits of cutting back on unnecessary spending.
We're now at the time of year when New Year's Resolutions are rife, and for many people, those resolutions will be of a financial kind. Indeed, Scottish Widows found that 62% of respondents are planning to set a financial goal in 2018, including spending less (28%) or saving more (45%).
Happily, many achieve their goals, with 33% of people able to spend less in January, cutting their outgoings by an average of £109.03 during the month – but only 25% save some of it. Given how much of a long-term benefit saving more can have, it could be time to make a change!
"January is traditionally a time when we set out to improve our financial habits for the year ahead and while it would be unrealistic to suggest we live entirely without little luxuries, there is an important message about the need to ensure untracked spending today doesn't harm our financial security tomorrow," said Robert Cochran, retirement expert at Scottish Widows.
"Our Retirement Report shows almost 23 million people are failing to save adequately for retirement, and so there is no time like the present to make the first step towards positive change. It can also help build a longer term saving habit and make a real difference to quality of life in retirement."
Cut back and start saving! Anything extra you can put into your pension could make a world of difference to your eventual retirement income, or you may even want to put that extra cash into a Lifetime ISA, allowing you to benefit from a Government bonus as you build your pension pot. Alternatively, if you've got shorter-term goals, find the right savings account to suit.
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