Saving for retirement: Shovel when you can

There are already a few rules of thumb for people saving for retirement. We've come up with another one.

A friend of mine has been working in a good job in publishing for a decade now, saving diligently to buy her first home.

She has now banked £10,000 – a good achievement and one that has required regular self-restraint. But with an average deposit for a one-bed flat in London costing several times that, she’s not even close to getting that deposit.

So instead, she has bought herself a round the world ticket, quit her job and given herself a year to spend her savings. She's off to New Zealand, South America and Australia, a proposition, let's face it, that would be much trickier were she paying a mortgage.

If homeownership has been demoted as a priority, you can imagine where retirement saving now stands. At age 30, it could be another 40 years away, so it’s understandable that it is not featuring in her plans.

When we talk about retirement planning, we still do so in expectation of a conventional life narrative: you study for your chosen profession, do it until around age 65, retire. However, as work and life expectancies change, that model is looking shaky. The idea that the profession we train for at 18 will be around for our entire working life is doubtful, as the world of work changes so rapidly.

The notion that we can work for that long without time out, as my friend is doing, is also questionable. She is part of a growing demographic that will have sabbaticals and various careers throughout their working lives, and who may have portfolio or freelance careers outside the sphere of conventional employment.

In this context, the old retirement saving rules of thumb look very dated. One rule is that you should aim for a retirement income equivalent to two-thirds of your working-life income. But this assumes that you will own your own home outright by the time you retire. Rising numbers older people are still paying off mortgages and other debts because they could only afford to buy property much later in life.

The other rule of thumb is that you should save a percentage of your salary equivalent to half your age when you start saving. But this based on the assumption that you will work solidly from that point to retirement.

"Take full advantage of a workplace pension while you can"

These are, of course, just rules of thumb, and any guidance on the difficult question "how much do you need for retirement?" is welcome.

But I would like to add another rule to complement these and bring them up to date. It's this: shovel when you can.

There will be times when you have a conventional job and your employer contributes to your workplace pension. There will be others when you're freelance and not benefiting from employer contributions. So when you are in a workplace pension scheme, take full advantage of it while you can.

When you receive a bit of extra cash – a bonus, inheritance or PPI compensation payout – consider a 'one for me, one for future me' saving approach. After all, it's money you had, until then, managed without, so you may be able to stash it before you get used to having it.

Workplace pension auto-enrolment contributions were stepped up last month, so employees must now pay a minimum of 5% of their salary and employers 3% towards a pension. This will have a short-term impact on incomes, and an extraordinary impact on retirement lifestyles. It's an opportunity well worth grabbing with both hands if you can.

Every year, commentators warn that this will be the year the chancellor of the exchequer curbs tax relief on pensions. After all, it costs the Treasury around £44 billion a year.

But until then, if you're a higher-rate taxpayer, you only have to save 60p to get a pound of pension contributions, thanks to tax relief. This relief probably won't be around for ever – so shovel while you can. Yes, steady, regular saving pays off, but I think the odd sprint is going to become increasingly important for younger generations.

Sometimes I imagine saving to be like a game of Grandmother's Footsteps – the children's game in which someone (grandmother) faces a wall and the others sneak up on them as quickly as they can, but have to be standing perfectly still when grandmother turns around or they're out. There are moments in a working life when grandmother is looking away. That's when you charge, run for it – save as much as you can.

A grandmother or grandfather in the future might just thank you for it.

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