Think you’ll never retire? Here are four things young people can do to prepare

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If you plan for retirement now, you’ll have less of a shock waiting for you in future. fizkes/Shutterstock
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Retirement planning sounds about as exciting as watching paint dry, especially when you’re in your 20s. But it’s actually the key to unlocking your future freedom. The earlier you start saving, the more time your money will have to grow. And you need to have a plan for how much you need to save and how you’re going to do it.

Unfortunately, retirement planning is often something that’s overlooked, even by people in their late 40s. And even if they want to start planning, they may find the idea of it overwhelming or be unsure where to start.

Here’s how you can start planning your retirement and take charge of your financial future.

1. Calculate your outgoings

You are likely to have less money to live on in retirement than as a working person. This is why it’s important to have a rough estimate of how much you will need in the future. Preparing a budget is one way to do that. Try to keep the age at which you wish to retire in the back of your mind.

You can break your future spending down into two main categories – essential and non-essential.

Essential expenditure covers the unavoidable costs of living. It includes things such as rent or mortgage costs, utilities, groceries and transport, for example. It can also include debts, like loans and credit card debts, although it’s best to try to clear this type of expenditure before you retire.

Non-essential expenditure covers lifestyle costs such as dining out, holidays and hobbies.

You can use a spreadsheet to work out all these costs and there are various retirement budget planners available online to help you too.

2. Calculate your pension income

You now need to estimate how much money you will have coming in.

The first step is to check how much of a state pension you are likely to get in future. This estimate, based on your national insurance contributions, provides an idea of the financial support you can expect. The UK government website helps work the figures out for you.

The next step is to consider your income from any private pensions you may have, which come in two main types – defined contribution pensions and defined benefit pensions.

Close up of a hand adding money to a jar.
Working out your future income and outgoings is essential when you’re planning your retirement. Rido/Shutterstock

Defined contribution pensions, also called “money purchase” pensions, are usually either personal or stakeholder pensions. So, they can be private pensions which you’ve arranged yourself or workplace pensions arranged by your employer.

If you are over 22, under state pension age and earning more than £10,000 per year your employer must automatically enrol you in a workplace pension scheme. This means that you will pay a certain amount yourself and your employer can make additional payments on top.

Quarter life, a series by The Conversation

The money paid in is invested by the pension company, which means that the value of the pot can go down or up depending on how investments fare. However, workplace pensions of this type are protected against risks. These investments also have preferential tax status from HMRC but fund managers take fees.

The amount you will get depends on several factors. First, how much was paid in. Second, how investments have performed. And finally, how you decide to withdraw the money; you may want to take money out as a lump sum or in smaller, regular chunks.



Defined benefit pensions, also known as “final salary” or “career average” pensions, are usually arranged by your employer. The amount you’re paid is based on how many years you’ve been a member of the employer’s pension scheme and the salary you’ve earned when you leave or retire.

In both defined contribution and defined benefit pensions, you can choose to take up to 25% of the amount built up as a tax-free lump sum. But the most you’ll be able to withdraw is £268,275.

It’s easy to lose track of your pensions, especially if you have changed jobs regularly but there are ways to track them down. The UK government offers a pension-tracing service which can locate lost or forgotten pensions.

3. Calculate any other income

Retirement income can often involve more than pensions and you will need to take all of it into account.

For instance, you may have savings like an Isa, which is a type of savings account that offers tax-free interest payments.

Although arguably unlikely due to the state of the market, you may also have decided to invest in property. This type of investment could provide a rental income in future or a lump sum if you decide to sell up, for example.

It’s also possible that you may want to continue working in some way as you get older.

Finance expert Martin Lewis explains what a pension is.

4. Retirement roadmap

Having assessed your potential retirement income and outgoings, you can now make a proper plan. Throughout this process, you should have had a retirement age in mind. While you’re not obliged to stop working entirely to access your pension, current regulations dictate a minimum age of 55 (rising to 57 from 2028).

You now need to identify any gaps in income. Remember, the UK’s average life expectancy is around 81 years of age. This means that you may potentially need to plan for an income for 20 years or more.

If you do have gaps, consider adjusting your plans. This could involve extending your working life, increasing your savings or strategically accessing funds from your pensions.

Further government-endorsed financial advice is available online. You can also find a financial adviser on the Financial Conduct Authority’s official register.

The Conversation

Chris Parry does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.