15 Mar 2018
According to research from Barclays, the average British millennial would like to retire at the age of 56 with over £300,000 in savings, the minimum they think they will need to spend their golden years in comfort.
With this goal set, Barclays conducted a study to determine if millennials were on track to meeting their target, based on their current savings habits. Whilst the results showed that the average millennial is currently saving significantly below what they need to reach their target, there’s still time to change their habits and start saving.
Clare Francis, Savings & Investment Director at Barclays, shares her top tips on how millennials can start saving for their retirement:
Start saving as early as you can
It seems obvious, but the earlier you start saving, the earlier you can retire. Right now, the average millennial is planning to start saving for their retirement when they are 34. With the ideal retirement age set at 56, that gives millennials just 22 years to fill their retirement pot. Your twenties or early thirties may seem too soon to start saving, but retirement will come around quicker than you think so start saving as soon as you can.
Create a savings goal and stick to it!
Whether you’re saving for something in particular, or just a rainy day, setting a goal can help to keep you on track. Think about how much you want to save in total and choose a target date for your goal. Monitor your progress and start putting away a set amount when your salary comes in through a standing order. That way, saving becomes a part of your monthly outgoings.
Cut back on non-essentials
Research from Barclays has shown that many millennials struggle to make cut backs. Given the frenetic pace of modern life, the occasional night out is the least we all deserve, and savers should put aside enough money to pay for these occasions, along with holidays and money for a rainy day. However, considerable amounts are being spent on short term gratifications. Instead of buying that £3 Latte, buy a thermos flask and start taking in your morning coffee from home. Can’t live without Netflix? See if you can reduce your account from standard to basic, or consider getting a house account and sharing the cost with your friends and family. If you’re savvy, cutting back doesn’t have to mean cutting off completely. Don’t pay more when you could pay less If you’ve been with the same utility provider or mobile network for many years, you might not be getting the best deal. It’s straightforward and free to switch. Similarly, see if you could be spending less on all your different insurance products. Even a small price reduction will add up when you consider all your policies – from car and travel, to home and even pet insurance. Whilst the cheapest deal may not be the best option for your circumstances, insurance is a very competitive industry, so make sure you do your research and get the right cover for the right price.
If you value pension schemes, start contributing sooner rather than later Barclays research revealed that two-fifths of millennials are neglecting to pay into their work pension schemes. Interestingly though, all millennials surveyed said they did one day intend to feed into a pension scheme, showing that they are still valued. If you feel the same, work out how much you can afford to put aside each month, knowing that you are unlikely to be able to withdraw it until you are at least 57.
Make your money work harder If you’ve already got money set aside in your savings pot, you can explore other ways to make your pennies work that bit harder. Through an investment platform, such as Barclays Smart Investor, you could open an investment ISA or investment account. Unlike cash savings, the value of investments can fall as well as rise, so you could get back less than you invest. That said, if you are prepared to invest for the long term, at least five years, you’ll have a greater chance of riding out any stock market storms. Choose the best ISA for your money Eligible UK residents are entitled to save a certain amount each year into an ISA without being charged tax. The tax year end for 2018 falls on April 5th, with a £20,000 tax-free allowance. Before opening an account, make sure you do your research on the different ISAs available, so that you can find the best option to fit your savings goals.
• Cash ISAs – Cash ISAs are like standard savings accounts, except you don’t pay income tax on any interest you earn. There are a few different types of Cash ISA, and the rate of interest they offer usually depends on how much they let you dip in and out of your savings.
• Investment ISAs – Over the long term, stock market investments have the potential to produce higher returns than cash savings. With interest rates at historic lows, an investment ISA – also known as a stocks and shares ISA – could be well worth considering, as long as you’re prepared to accept the risks involved. Instead of paying a guaranteed rate of interest, investment ISAs allow you to invest in the stock market, and you don’t pay any tax on the growth of your investment portfolio that’s inside the ISA wrapper.
• Innovative finance ISAs – Innovative finance ISAs enable you to earn tax-free income from peer-to-peer (P2P) lending products. Any money you put into a P2P account it is lent out to a business or individual. Rates tend to be higher than on Cash ISAs, but are not necessarily guaranteed as they are dependent on borrowers repaying their loans. Your money is not protected by the Financial Services Compensation Scheme, although many P2P providers have their own protection schemes.
• Help to Buy ISA – Help to Buy ISAs are a good way of helping you get on the property ladder, offering a guaranteed uplift thanks to the 25% government bonus on amounts saved between £1,600 and £12,000. If you are looking to buy with someone else, as long as the property you wish to purchase is within the price cap and you are both first time buyers, you can separately claim the government bonuses due on your savings and put both bonuses towards the home you’re buying. Barclays Help to Buy ISA currently has a very competitive rate, paying 2.53%. The minimum government bonus is £400, so you will need to have saved at least £1,600 into your Help to Buy ISA to be eligible for the bonus. The maximum bonus is £3,000, which is available if you have £12,000 in your account.
• LISA – A Lifetime ISA (LISA) is a dual-purpose ISA, designed to help those saving for a first time home and retirement. You’re able to open a Lifetime ISA if you’re aged between 18 and 39 and can save up to £4,000 each tax year until your 50th birthday. The government will pay an annual bonus of 25% (capped at £1,000 p.a.) on any contributions you make. Funds can be withdrawn tax-free at any time in order to buy a first home worth up to £450,000, and from age 60 for any purpose. If withdrawals are made for any other purposes penalties apply, so you need to be certain that a Lifetime ISA meets your investing objectives.
Please remember that tax rules might change in the future, and their effects on you depend on individual circumstances, which can also change.