Pensions and Saving

This follows from my post on the stages of retirement, I identified the first stage as accumulation.  For me the accumulation stage starts when you are old enough to be prepared to commit to long term saving even if it means having money tied up in a pension but you are still  working full time.

My financial goal in the accumulation stage is to maximize the pot that I have available for retirement whilst minimizing the bad things in life.

The bad things are

• Work that isn't congenial

• Cutting back my spending on things that I enjoy

Obviously it's possible that I reach a point where I just have to choose between good things and bad things. I might  just have to take on a bit of work that I'd really rather not do, or cut spending on "luxuries" in order to increase my retirement provision.  But I don't think there's any point blogging about that, the trade off of competing wants is a personal choice, what works for me might not work for you.  But if I come across something that boosts my pension pot and doesn't give rise to a corresponding bad thing then that probably is worth telling you about. 

To start with a basic point: saving is better than earning.  Earning is always likely to involve working and there is always the potential for work not to be congenial.  In my opinion once I'm working more than a certain number of hours a week, work is always uncongenial.

Secondly, I'm going to spend money for as long as I live, but I'm not going to earn money for as long as I live. So finding £1 of savings will have more life time value than finding a way to earn £1 more.

Finally, if I earn money I'm going to pay tax on it, but if I save money that's tax free.

Just to give you an idea of the second and third effects: I have rigged up a spread sheet to forecast my income in retirement.  If I show my income increasing by £1,000 per year until active retirement it increases my net lifetime income minus lifetime spending figure by £14,000. Pretty good.  But if I can save £1,000 then that increases my lifetime income minus spending by £37,000.

So last year I had a look at my spending.  I don't want to say too much about this, There are tons of sites on the internet that tell you how to save money although quite a lot of them read like Viz top tips. But some things that I did find useful were:

• Recording what I spent.  Fairly obvious point but hard to save without it and much easier to do now that 85% of spending is on a card.  It also shows how small spends can mount up, for instance I was spending over £1,000 a year on take away coffee.

• Walking. Walking is the looking forward to retirement blog, top tip.  It saves money, its the most enjoyable way of getting around and it helps your health.  Win win win.

• Stop spending money on stupid things.  Its unlikely that you are this stupid but I found I was spending £20 a month on contact lenses when I had laser surgery on my eyes 4 years ago.   And there were a few other long standing orders that got given the heave ho without reducing my quality of life one iota.

• Look out for commodities.  I class a commodity as anything where exactly the same product is sold by different providers. Accordingly you can reduce spending without sacrificing anything.  A good one for me was broadband, I switched from Virgin to Sky but when I phoned up Virgin to disconnect they then, magically, beat Sky's offer.  Utilities is another good area.

• Something I did, that I wouldn't do again, was spending less money on my property.  It became apparent that I was going to have to reverse some of the cuts else I'd end up living in something that was falling down and unpleasant to boot.  I'd characterize my mistake as confusing investment with pointless spending.

And, on that bombshell I'll finish.

Next week I'll do a  post on some tax and pensions points.