Why should anyone bother saving for retirement?

Pensions, why bother?

Your gut instinct is spot on - you shouldn't worry about retirement now, not at the age of 25. Suppose you're not a footballer in the middle of the most productive part of your career and already have a thick wad of crispy banknotes under your pillow that you want to set aside for a rainy day when you can't play in your prime. That doesn't mean you shouldn't invest, nor does it mean that you shouldn't save.

Several factors play a role here.

As a young person, you likely have a high tolerance for risk. There is still plenty of time to recover if the expected returns do not materialize. Even a retirement fund with the most aggressive risk / reward strategy may not quite do this for you. Instead, you could invest in education, improve health, acquire a profitable skill, create social capital by making connections, paying for experience, buying a home, starting a family, or even starting a business.

As a young professional, you are unlikely to have reached your full earning potential. Because of the Marginal Benefit Reduction Act, once your income plateaued, a hundred pounds a month will now have a greater benefit (that is, a positive impact on your lifestyle) than seven hundred pounds in 7-10 years. That said, it is easier to save £ 700 monthly from £ 3000 and maintain a decent level of personal comfort than it is to save £ 100 from £ 1300 monthly income.

And last but not least, let's look at it from a human perspective - forty years is a very long investment horizon and many things could and will change. One of the downsides to UK pensions is that you have very little control over the money until a certain age.

Tactically, I suggest saving up to build a pillow that is cash, or near cash. The size of the warehouse should be such that it is sufficient to cover all your expenses from a minimum of 2 months to a maximum of a year. The exact size depends on your personal level of comfort, regardless of which social network you have (parents, wife, partner) and how difficult it will be to find a new source of income when electricity is no longer produced.

Strategically, you can try to invest excess money in the foundation of what will bring joy and happiness into the next 40 years of your life. Training your or your partner's education is one of the most sensible decisions you can make when you are young. Starting a family is another. Either of these can help you reach your full earning potential much faster. Find what you love to do and learn how to do it really well - cash can speed that process up and get you where you want to be faster.

If you were a start-up in front of a huge, unconquered market, would you rather use cash to pay dividends or fund growth?