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Welcome to Meren Talks Your Money, the personal finance edition of Meron Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merrin sums Thatt Web and with Me Senior a Border of Money Distilled author John STEBACKA John, hi'm so this week we're answering a question from Dress, who is eighteen.
Edra's asked, I'm hoping to be going into the world of work results day willing, and my question is whether you think maxing out my company pension match is enough for when it comes to saving for my pension.
It's not immediately as straightforward as it sounds for someone of Iddress's age. If you're eighteen, you're not automatically opted in. You're not automatically opted in until you're twenty too. Before that, however, if you earn over six two hundred and forty pounds, you do have the right to opt yourself, and so obviously it's a very good idea to do that as soon as you possibly can. Other thing to say is that it doesn't happen immediately, or it doesn't necessarily happen immediately.
Your employer has the right to delay three months before they enroll you into an a pension that would a good employer will enroll you immediately, and I hope, I hope Address that your employer does do exactly that. Also if you've got your results. By the way, but this is an opportunity to talk not just about eighteen year olds, but about people in general going into the workplace and
getting a pension. Is it enough to simply take that eight percent, sit back and forget about the whole thing until you retire?
John?
Is it fascinating? I'd like to say, is that I'm quite impressed that as an eighteen year old, Address is thinking about this eighteen year old great, yeah, I mean But the other thing is I mean, coincidentally, when they're late, we had new employees at money be Card whatever, and also other managers here at Bloomberg. I've kind of mentioned this to me that a lot of the time they're kind of younger. Newer staff will come to them and say, oh, do I really need to put money into this pension thing?
And the things? The thing it's worth getting it clear in your head you should definitely join your auto enrollment pension, because if you don't, then you're literally leaving some of your pay for your employer to keep. It's that straightforward.
That's right forward.
And also if your employer does offer matching, so that you know if you put in five, they'll put in five. If you put in sex, they'll put in sex, you should max that out as much as you can, because again, that is for one of a better world. It's not free money. It's money you're not taking if you leave it on the table.
So that I think they object to that is, Look, I'm young, I'm trying to pay rent. I've got a whole pile of expenses here, I'm paying twenty percent income tax, I'm paying eight percent, and I am paying nine percent of my student loan. Although it sounds like you're risk hub's not going to universities, it's not going to have that going straight into apprenticeship or something brilliant like that.
But it's say you say you have got that, so you've got your twenty percent, you're eight percent, you're nine percent, and then another five percent on top of that. At some point your twenty something is going to go. I can't do this, it's too much, I get it.
But honestly, from from that point of view, I think, and it's four percent year after salary, sort after tax income because it's gross stops, you know.
So.
You should try as hard as possible to be able to afford that. Because unless you've got an insanely big credit card build it's racking up a lot of interest. Then I don't see any senseible reason to not be putting this money aside. If you can't live on what you're learning at the moment, then I'd suggest trying to find another job. But it just just spending habits or something. I know that sounds brutal, but I'm talking about four percent here. We aren't talking about it's basically givin that.
Presumably your sality isn't that loud if you're just starting O, it's just a good tar but you get any I mean, do you think that I'm being on the fiear?
I do?
You know?
I don't.
I mean, I think you're right. If you can do this, you must do this, and you must do everything that you can to make sure that you do do this. And the hope, of course, is that people are automatically enrolled they don't know this is happening. They never see the income, so they never miss it. My only fear here is just that it's already tough out there, tough, and young people are paying a huge amount of their income away already, and this is just a burden on top.
But none of that. So you should do it. Yes, you should do it the absolute extent that you can. You should do this. So here's the second part of the question. Is it enough just to do this now? And awful lot of people are going to tell you. They answered, no, it's not enough. You've got to do more.
You've got to put more and more and more. But I come back to my original point, which is, hang on, it's tough out there already, and life, your financial life anyway, is about balancing your living standard now and balancing your living sta and in the future, right, And so I think it's important not to encourage people to oversave in their twenties to the detriment of actually living, actually living, actually having fun, actually being able to afford the stuff
that makes life nice. So I'm slightly against encouraging people to put more in. And I would also say that if let's say you start on a reasonably average salary, and your salary goes up by inflation plus a bid every year. And I've done the numbers on this, written columns on this. Do go and look on on Bloomberg and look for those columns. But you do end up with a couple of hundred thousand pounds if markets bathe like they normally do, from which you can take an income.
Add that to the state pension, which I really hope will still exist and not be means tested when Idris retires, although I cannot guarantee that. But if you have that and you have the state pension, you should have a reasonable base income to retire. And I hope is as you get older and earn more, you'll be able to save into ices and to have different types of savings and hopefully be able to afford a house, etc. Which should mean that that pension income is enough.
Not sure.
As you get older and as you earn more and hopefully there's excess cash one one day, put it into your pension. Definitely, But I'm not sure that we should be encouraging people who are already on limited limited after tax incomes to oversave at this point in their career. Is that wrong.
No, Actually, I agree with you, and I think that even if you have the excess income, if you like, then you should probably be looking save that once you've you know, maxed out the pension element. Save that in an eyser because the other important thing is that at the age of eighteen or your early twenties, you are so far away from the end goal and you've no idea what's going to happen over the next kind of fifty years. Well, not so forty.
Years she maybe sixt year this, well maybe.
Yeah, hopefully the life expectancy and health spans will go op. So it's not all but but you know, you need you really need the optionality the younger you are. I mean, for example, you know, you may just say that you want to go and set up a business, which is something that you can feasibly take the rescue doing when you're that age. So you want to have your spare
capital accessible. You don't want it locked up until you're you know, fifty seven or sixty seven or whatever the age will be at that point to take out your pension what is it now and at the moment mill.
It's going up to fifty seven. The other key thing to say, I suppose is John, I think you and I both agree that everyone, before they do another type of saving, should have six months worth of incoming cash.
Oh yeah, you should have any that's your freedom money.
That's your freedom money.
Yeah, yes, so.
Yes, take the pension. Then focus on building up six months worth of incoming cash, either in side of cash is for or outside of cash, either depending on where you can get the best rates. I remember, you can get one thousand pounds worth of interest.
Is it still a thousand pounds a year?
It's still I mean, things may change in October. That's about you're coming up. A lot of the things we're talking about could change in October. But yeah, save that money first. Then start putting stuff into an ISA, and make sure you keep that pinching countries running alongside.
Yeah, I mean I do. I think that's important because yeah, i'd like to see as you see, you have to you have to live now and the other things. He's going to want to save up for our property at some point, and obviously you can't do that with our pension.
The lifetime is IS is probably a good bit for that because he's young enough to get it, and you get kind of decent top up, and presumably the one thing that all governments seem to care about is making sure that first time buyers overstretch themselves to go in the housing market. So I'm sure I.
Can't say anything with that little criticism built in, can you? So listen? This is obviously not financial advice, and everyone's circumstance is a different and so this is suggestions of what you might like to think about as opposed to advice specifically of what you should do. But we really appreciate that question. It's a very very good one and something that we she'll be thinking about. So thank you so much, Edis for calling in and giving us your question.
Thanks for listening to this week's Maren Talks Money debrief. If you like our show, rate review, and subscribe wherever you listen to podcasts. Also be sure to follow me and John on ex or Twitter at meren sw and John Underscore Steppek. This episode was produced by Sumasadi, Production support and sound designed by Moses and Questions and comments on this show and all our shows are always welcome. Our show email is Merenmoney at Bloomberg dot net.