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How you could save for retirement on a lower income

There’s no need to be super rich to start saving for retirement. Here’s what you could do if you’re on a lower income.
Woman looking at the sea | Wealthify
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If you want to live comfortably in retirement, it’s important that you put money aside in a pension pot. But let’s be honest, it’s not always easy to save, especially when you’re on a lower income. But it’s not impossible! Here’s how you can save for retirement if your income isn’t quite where you want it to be.


Start when you can
The first thing you could do is start preparing for retirement now, regardless of your income. And we’re not necessarily talking about saving here (not yet), we’re talking about planning and laying the foundations for your future. So, where do you start, you ask? Well, first, it’s generally a good idea to try and get your finances in shape. By this we mean checking debt and building yourself an emergency fund to cover any unexpected expenses.

It’s also worth reviewing the retirement savings you’ve already got. If you’re working and paying National Insurance contributions, you should be eligible for the new State Pension when you reach your State Pension age.

To get the full new State Pension, which is currently set at 9,627.8 a year (as of August 2022), you’ll need to have paid at least 35 years’ worth of national insurance contributions1. You can check how much you’ve paid in here https://www.gov.uk/check-national-insurance-record – you’ll need a Government Gateway user ID to get access to your national insurance record.

Also, if you’re employed, you should be enrolled into a workplace pension where you contribute at least 5% of your salary every month before tax – your employers will add 3% of your pay to your pot too. If you’ve been auto-enrolled, then it could be worth checking how much you’ve got saved. To do so, you’ll need to log into your pension account – if you’ve lost your password, you can contact your provider to issue you with a new one. And if you can’t remember the contact details of your provider, then don’t worry, just go on the HMRC website and fill in the online form and you should be given all the info you need: https://www.gov.uk/find-pension-contact-details.

Keeping an eye on your state and workplace pension(s) will help you have a better idea of where you stand. If you’re serious about planning, it could also help to set yourself clear and measurable retirement goals. How much would you like to retire with? To answer this question, you’ll have to consider your future expenses, such as healthcare, bills, grocery shopping, and any hobby you may have. Then, once you’ve got an estimate of how much you’ll need (approximately) in retirement, you’ll be able to track your progress and adapt your strategy to try and reach your goals.


Look into personal pensions
If your finances are in order, it could be worth considering personal pensions. Also known as SIPPs (Self-Invested Personal Pensions), personal pensions are a great and flexible way to boost your retirement savings. Not only do can you choose how much you put in your pension pot, you’ll also receive 20% tax relief on every contribution you make. Say you’re a basic rate taxpayer and put £800 in your personal pension. The government will add £200 to your pot, bringing the total sum to £1,000 – in other words, with a personal pension, you’ll get extra money from the government, what’s not to love? And if you do the maths, you’ll notice that £200 is 25% of £800, meaning you’re effectively getting a £25% uplift on each contribution you make, how amazing is that?

You can put as much as you want to in your personal pension, but each tax year, you’ll only get tax relief on the total of your earnings, up to £40,000– this includes all your contributions, plus the tax relief from HMRC. One thing to note is that everything you put in a personal pension is locked away until your 55th birthday. Once you turn 55, you’ll be able to take your money out – but remember you can pay into your pension until you’re 75!

You may think that opening a personal pension requires a lot of effort, but it doesn’t. With robo-investing platforms, like Wealthify, it only takes a few minutes to get started. Simply choose how much you want to invest and your investment style – we’ll do the rest. Our team of experts will pick the right mix of investments, monitor the markets, and make any adjustments to your Wealthify Pension, when needed, to keep it on track with your risk level and goals.


Consider investing little and often
Being on a lower income doesn’t mean you can’t save for retirement. You may not be able to put large lump sums aside, but that’s ok, it’s possible to build up a decent pot by paying in small sums regularly. If you manage to save a few pounds every month, your retirement pot should gradually grow and over the long-term, you could end up with enough to retire. But that’s the thing here, if you want to reach your retirement goals, whatever they are, consider sticking with your investments for a number of years so your money has more time to benefit from the power of compounding.

What is ‘compounding’, you ask? Well, it’s simply when your profits start generating further profits as you re-invest them. By putting your gains (dividends and interest) back into your pension, your money could snowball. And the earlier you start putting money into a pension, the more effective the power of compounding will be.

Let’s take an example so you can see how compounding works. Say you’re 30 and open a Wealthify Pension. You decide to put £100 in your pension every month and you’re planning on retiring at the age of 65. After 35 years, your pot could be worth £110,4922. Now say you had started five years earlier, at the age of 25. Four decades later, you could have had £144,855 – that’s an extra £34,3633.

If you’re on a lower income, remember that time can do wonders to your finances – it’s not just about how much you can afford to put aside, it’s also about how long you’re sticking with your pensions, and generally speaking, the longer, the better for your retirement income.

Working out how much you need to save in order to retire can be tricky, but luckily, our pension calculator does all the hard work for you. In four simple steps, you can get a good idea of whether you’re on track or not. Try it today and see what you could get.



1: https://www.gov.uk/new-state-pension/what-youll-get

2: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme and includes tax-relief. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £71,943. If markets perform better, your return could be £179,225. Values correct as of 26/08/22.

3: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme and includes tax-relief. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £89,755. If markets perform better, your return could be £249,530. Values correct as of 26/08/22.


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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