Planning for retirement is just one area in which, with the benefit of hindsight, many people wish they had taken action earlier.
According to a recent study, two in five pensioners regretted retirement-planning mistakes which had left them struggling financially.
Nearly one in five said they had not save enough for retirement and 15% regretted not starting to save earlier in their working lives.
Understandably, many of us still have misgivings about locking our money away for decades – especially if we have more immediate calls on our income.
But if we’re serious about planning for the future, we need to put away surplus income today to fund our lifestyles tomorrow.
So how should we go about saving for life after work? There are some compelling reasons why a pension is still the most obvious answer.
Pension contributions attract tax relief on the way in and they accumulate capital gains free of tax once inside.
When you access your pension savings, the first 25% is normally tax-free. While you cannot draw benefits until your 55th birthday, this can also be an advantage as it restricts the temptation to tap into your retirement fund before then.
How much pension income you need in retirement will be determined by a number of factors, including your health, living expenses and desired lifestyle.
Unfortunately, there’s no one-size-fits-all answer. The average worker in the UK earns £26,364 a year, so a pension income of around £20,000 might seem like a reasonable target for most people.
Assuming you qualify for the full single-tier state pension of £8,094 annually, you would need to find at least £12,000 from your other pensions to achieve an overall income of £20,000 a year.
Achieving this can be very challenging for people on low incomes, or with unpredictable earnings – especially for those who delay saving.
For example, someone in their mid-20s who starts saving into a defined contribution pension today would need to save around £250 a month to achieve annual income of £12,000 by the time they reach state pension age.
Someone who delays until their mid-30s would need to put away £420 a month; and a 45-year-old who hasn’t started a pension would need to start saving about £850 a month.
This is all based on the assumption the pension fund is used to buy an annuity.
Under “pension freedoms”, people can draw down their defined contribution pension in a variety of ways.
But an annuity remains a popular method of providing a retirement income and a useful yardstick against which to measure the required saving rates.
The sooner we start saving, the more choices we have later. The power of compound returns (gains on gains) means 10 or 20 years can make a big difference.
You should never think that it’s too late to start saving, or that you can’t catch up. There are significant opportunities to make up lost ground if you have the available means and allowances.
Although you can put as much as you want into your defined contribution pension each year, you’ll normally only get tax relief on contributions up to £40,000.
If your scheme operates a “relief at source” arrangement, your pension provider will add tax relief of 20% to your contributions. You can then claim anything above the basic rate via your annual tax return. A £40,000 contribution could effectively cost a higher rate taxpayer just £24,000.
The fact remains that the best way to secure a comfortable retirement is to save as much as possible as early as possible in your working life, and take financial advice. The longer you delay saving, the harder it will be to build the kind of fund that will see you through retirement.