Patience is a Virtue
Written by Fowler Financial Planning, Feature photo by Kevin Dooley.
A ‘live for today’ culture and competing financial priorities are compromising efforts to save for the future.
In 1960, a series of experiments led by Walter Mischel at Stanford University looked into cognitive short-sightedness in children. Groups of four-year-olds were told that they could have one marshmallow now or, if they waited 15 minutes, two marshmallows. Two thirds of the youngsters chose the first option.
Similar patterns of behaviour can be seen in the saving habits of adults. Many of us will recognise that our inclination to place more value on experiences that give us instant gratification – rather than on those that offer larger, delayed rewards – can undermine our saving plans. Yet the closure of final-salary pension schemes, together with rising life expectancy and associated health and social care costs, mean a lack of savings can have a real long-term impact.
Taking a sensible and pro-active approach to pension savings at an early stage can help minimise the stress involved in managing your day to day finances, safe in the knowledge that you have a pot ready for retirement.
Many people worry that they cannot afford to save for the long term because of competing priorities, such as student debt, mortgages, running a business or starting a family. As a result, reports indicate that many people are failing to save enough for their later years, leaving them facing a pension shortfall.
For many, the thought of retirement can sometimes feel so abstract and unreal that the temptation is to abandon pension saving and use your money for other purposes. But while retirement may be the last thing on your mind, a failure to plan for the future and to make the most of pensions opportunities available to you (through your employer and/or through private pensions schemes) can have a material long term impact, because pension contributions made early on have the most to gain from potential growth.
“Unfortunately, the longer you leave it, the harder it will be to achieve the retirement you want. A recent report published by Scottish Widows (70% of under 30s risk sleepwalking into pension shortfall, 28 June 2017) indicates that, on average, under-30s expect to need just over £23,000 per annum for a comfortable retirement and that someone who starts saving into a pension at 25 years of age would need to put aside £293 each month to achieve that income, whereas someone who delays saving until 35 would need to put away £443; at 45 this rises to £724 and at 55 to £1,445.”
By committing to pension saving early in your working life, you have a much better chance of balancing this against competing financial demands (and minimising financial worries as a result!) whilst also achieving your desired income level in retirement.
In studies following up on the Stanford marshmallow experiment, researchers found that children who were able to wait longer for a bigger reward tended to have better life outcomes, as measured by indicators such as educational attainment and self-reliance. As adults, making a sacrifice now to achieve something of greater value later on is just as hard. Yet mastering self-discipline is likely to lead to equally positive outcomes. “The value of a pension with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.”
For advice and assistance in connection with your pension planning or your company’s pension obligations, or with any aspects of your financial affairs, please contact us or visit our website to arrange a no obligation consultation.
Fowler Financial Planning
Based in Exeter, Fowler Financial Planning provides financial advice to individuals and SMEs in the local area, across the South West and in London. With an ever-changing environment and changing client circumstances, we feel it is essential to develop bespoke financial plans for clients to help them achieve their goals, and, more importantly, to review these plans regularly to ensure they remain current and accurate. Fowler Financial Planning is a Partner Practice of St. James’s Place Wealth Management plc.
Tel: 01392 790623 / 07931 443415
The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.