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Five reasons why I can’t afford to save for my retirement

Alistair Cunningham
Alistair Cunningham

It’s rare (if not non-existent) that someone gets to retirement and says “I wish I had less income”, but at this time of year with people considering their new year’s resolutions, there is a chance that saving more might be on their list of considerations. Taking this into account, I’d like to offer five good reasons why you might not want to save more for your retirement:

I can’t afford it

You’ve got a mortgage? Dependent children? Other commitments? Whatever the reason, only contribute what you feel you can afford.

Mortgage interest rates are at a long-term low, so if you feel you can’t afford to save (to build up either a retirement fund, or sooner ‘headroom’ for rate rises) you might be in trouble when rates inevitably rise.

I won’t need much money in retirement

The current Basic State Pension is £97.65 per week (2010/11), those fortunate enough to be employed and “contracted-in” might (in a best case scenario) have a similar earnings-related Second State Pension. Find out from the DWP here, what you’re entitled to. You might find this, with other sources is enough to heat and light your home, pay food and other bills; but unless you have other savings or investments you might find you have a significant drop in income.

I’m not planning on stopping working

You could work until you drop. Or you might favour or more relaxed retirement. Even if you favour the first option, take the time to think about what would happen if health forced you to reduce or cease working.

I’ve left it too late

The effect of compounding does tend to make earlier saving more effective than later savings; or to put it another way, the later you leave making contributions the more you’ll have to pay in to produce the same ‘pot’.

I don’t believe in pensions

There’s more than one way to save for retirement, for example ISAs may provide a useful complement to pensions. For higher or additional rate tax-payers there can be significant tax breaks for making contributions, but the rules can also be complex. A good Financial Adviser should be able to explain all the different ‘wrappers’ available to you, and recommend a tax-efficient (and appropriately accessible) savings strategy.

Alistair Cunningham

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Alistair, a founding director of Wingate Financial Planning, specialises in complex client cases, particularly owner-managed businesses, pensions, and retirement planning. He is a member of the Wingate Investment Committee and a Chartered Financial Planner, Fellow of the Personal Finance Society, and member of STEP and the Chartered Institute of Taxation.

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