Making a fresh start in the New Year by giving up booze for January could increase your retirement income by as much as £1,000 a year.
Research by actuarial firm Jardine Lloyd Thompson Employee Benefits (JLT EB) suggests that if you pledged a dry January from the age of 22 to retirement, and invested the money saved in your pension instead, then you could top-up your retirement pot by as much as £20,000.
Of course these calculations would only stand a chance of adding up to the specified amount if you stuck to your dry January resolution, and already spend around £30 a week on alcohol. While this may not be relevant to everyone, the calculation highlights the potential impact that a small change could have in the long term.
Chief Executive of JLT EB, Mark Wood, said:
“A small sacrifice now can make a real difference to your standard of living in retirement.
“Auto-enrolment is a welcome first step towards combating poverty in retirement, but it is not enough to guarantee financial stability for all pensioners.
“For most of us to achieve retirement outcomes that we can look forward to, we need to save more, now. This research shows that even a small amount of savings into your pension of an extra £10 a month over your working life can really add up.”
Two million people were signed up to the auto-enrolment pension scheme in 2012, however it is feared that there will still be a shortfall when they reach retirement.
How’s it calculated?
JLT EB’s calculations are based on a 22 year-old earning £25,000 and drinking the maximum amount suggested by government guidelines- 21 units a week- or 9 pints of lager. These pints are assumed to have cost £3.20 each, which would add up to £125 over the course of January.
If they then went to invest this money in their pension, with tax relief added, and made this saving every year in January, then assuming their investment increased by 6% a year and they retired at 68, their pension would be £20,000 larger. This could increase a pension pot from £260,000 to £280,000, which could amount to a £1,000 yearly increase in retirement income.
-Image of Mark Wood, CEO of JLT EB, courtesy of Smithfield Financial.