When might be a good time to start saving? Case study one. Example one: Alicia contributes 20 every month from age 28 up to her 68th birthday

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1 When might be a good time to start saving? Case study one Alicia is 28. She wonders if she s too young to start saving in NEST. She expects she ll get a pension one day but feels it may be too early to think about retirement. She can t start getting her State Pension until her 68th birthday. This is when she expects she ll take her money out of NEST. Alicia is thinking of putting off saving until a later date. But she wants to know whether it makes any difference when she starts. In both of the following examples Alicia contributes the same amount of money in total. The only difference is when she starts saving. Example one: Alicia contributes 20 every month from age 28 up to her 68th birthday Alicia contributes 20 every month. Her employer contributes 15 every month and the government contributes 5 tax relief every month. This adds up to a total contribution of 40 a month into NEST. Alicia contributes regularly for 40 years, which means she contributes 9,560 in total. She also gets 40 years worth of contributions from her employers, which adds up to 7,170. She gets a further 2,390 tax relief back from the government. So the total amount contributed over 40 years to her retirement pot is 19,120. These contributions have plenty of time to grow. She receives about 14,880 on top of her total contributions from investment growth. When she takes her money out at 68, her retirement pot is expected to have grown to more than 34,000 in today s money. That s over three times the amount of money that she paid in herself. She may be able to take at least some of this amount as tax-free cash, and convert the rest of her pot into a retirement income that will last for the rest of her life.

2 Case study one Example two: Alicia waits until she s 48 to start contributing. She contributes 40 every month up to her 68th birthday Alicia contributes the same total amount as in example one. But because she waits until later to start saving in NEST she only gets 20 years worth of contributions from her employers. This adds up to 3,580. On top of this she also gets the same total amount of tax relief as in example one. Her money has less time to grow. She only receives 3,870 on top of her total contributions from investment growth. So when she takes her money out at 68, her retirement pot has grown to around 19,400 in today s money. That s about 14,600 less than if she started contributing at 28 and paid in the same amount of money. She may be able to take at least some of this amount as tax-free cash, and convert the rest of her pot into a retirement income that will last for the rest of her life. Important information on these examples We ve used a fictional character for this case study. It s designed to give you an idea of the effects of working for longer and contributing more. The amount we ve estimated for Alicia s retirement pot isn t guaranteed, but it shows that what you do now could affect how much you get when you take your money out of NEST. In the case study, for every month Alicia contributes she gets 15 from her employer. She also gets basic rate tax relief from the government. This comes to a quarter of her own contributions. All contributions are shown in today s money - this is explained at the bottom of this page. The contributions to Alicia s pot actually increase each year in line with inflation. Alicia s retirement pot is invested in a NEST Retirement Date Fund. Each year, we ve assumed that her pot grows in value because of the return on her NEST investments. We assume that for most of Alicia s time saving with NEST, the value of her pot will grow by about three per cent more than inflation until her NEST retirement date. Today s money All the amounts are worked out in today s money, which means we re showing what Alicia s retirement pot may be worth today. This is different from the amount she ll actually get when she takes her money out of NEST. Below are some examples of how today s money works. Alicia s NEST retirement date is 30 years away. She s been told that on this date she could get a retirement income of about 100 a week in today s money. This means her weekly retirement income would be worth about the same as 100 a week is worth today. To put it another way it would buy her the same amount of goods that 100 buys her today. Prices usually go up over time because of inflation. We assume that inflation will be 2.5 per cent each year. Over time, the effect of inflation builds up so, as an example, in 30 years it will take 210 to buy what 100 buys today. That means Alicia s weekly retirement income could actually be 210 a week. This sounds like a lot more than 100. But because of inflation this 210 would only buy her the same amount as 100 buys today. That s why we say that 210 in 30 years time is 100 in today s money. NEST Corporation All rights reserved. This information does not constitute financial, investment or professional advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed. NS124 NCS1 02/2013

3 Is it worth paying in more? Jason is 35. He s been saving 40 a month in NEST for a few years. Case study two His retirement pot is now worth about 3,500. He also gets a 30 contribution from his employer each month and 10 tax relief from the government, resulting in total contributions to his NEST pot of 80 a month. He thinks he ll take his money out of NEST on his 67th birthday. This is also the date when he can start getting his State Pension. He wonders if he should be saving more. He doesn t have that much to spare each month but he thinks he ll need more than his State Pension when he retires. So he wants to try and get as much as he can from his NEST pot. Jason looks at NEST s Pension Calculator. He sees that his retirement pot could be worth about 66,600 on his 67th birthday if he continues to contribute to his NEST pot until retirement. The calculator shows him that he may be able to use his pot to: take up to 16,900 as a tax-free cash lump sum use what s left to get a retirement income of just over 2,720 a year to add to his State Pension. He ll get this income for the rest of his life But what if he contributed more? Let s see what might happen if he adds to his monthly contribution. Example one: Jason pays in 50 a month (an extra 10) This means there s a total of going into Jason s retirement pot every month, including the extra tax relief he gets from the government. It would be higher if he worked for an employer who matched his additional contributions. If he gets the same rate of return on his NEST investments his retirement pot could be worth almost 75,500 on his 67th birthday. This is an additional 8,900. He may be able to use this total retirement pot to: take up to around 19,100 as a tax-free cash lump sum use what s left to get a retirement income for the rest of his life, giving him around 3,090 a year to add to his State Pension

4 Example two: Jason pays in 70 a month (an extra 30) This means there s a total of going into Jason s retirement pot every month, including the extra tax relief he gets from the government. It would be higher if his employer agreed to match his additional contributions. If he gets the same rate of return on his NEST investments his retirement pot could be worth over 93,200 on his 67th birthday. This is an additional 26,600. He may be able to use this total retirement pot to: take up to about 23,300 as a tax-free cash lump sum use what s left to get a retirement income for the rest of his life, giving him around 3,810 a year to add to his State Pension Case study two Important information on these examples We ve used a fictional character for this case study. It s designed to give you an idea of the effects of working for longer and contributing more. The amount we ve estimated for Jason s retirement pot isn t guaranteed, but it shows that what you do now could affect how much you get when you take your money out of NEST. In the case study, Jason gets basic rate tax relief on his contributions from the government. This comes to 25 per cent of his contributions each month. All contributions are shown in today s money this is explained at the bottom of this page. The contributions to Jason s pot actually increase each year in line with inflation. Jason s retirement pot is invested in a NEST Retirement Date Fund. Each year, we ve assumed that his pot grows in value because of the return on his NEST investments, minus the charges he pays to NEST. We assume this growth is between two and three per cent more than inflation for every year until Jason s NEST retirement date. Today s money All the amounts are worked out in today s money, which means we re showing what Jason s retirement pot may be worth today. This is different from the amount he ll actually get when he takes his money out of NEST. Here s an example of how today s money works: Jason s NEST retirement date is 30 years away. He s been told that on this date she could get a retirement income of about 100 a week in today s money. This means his weekly retirement income would be worth about the same as 100 a week is worth today. To put it another way it would buy her the same amount of goods that 100 buys her today. Prices usually go up over time because of inflation. We assume that inflation will be 2.5 per cent each year. Over time, the effect of inflation builds up so, as an example, in 30 years it will take 210 to buy what 100 buys today. That means Jason s weekly retirement income could actually be 210 a week. This sounds like a lot more than 100. But because of inflation this 210 would only buy him the same amount as 100 buys today. That s why we say that 210 in 30 years time is 100 in today s money. NEST Corporation All rights reserved. This information does not constitute financial, investment or professional advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed. NS124 NCS2 02/2013

5 When should I take my money out of NEST? Case study three Margaret is 55. Her State Pension age and her NEST retirement age are both 66. She s been planning to retire then, start getting her State Pension and take her money out of NEST. Her NEST retirement pot is now worth about 20,000 and she still contributes 50 per month. Her employer also contributes per month and she gets tax relief from the government of per month, which gives her total contributions of 100 per month. She s heard that she might be able to increase her retirement income if she delays taking her money out of NEST. Margaret looks at NEST s Pension Calculator. It tells her that she might get a retirement pot of just over 49,400 at age 66. She may be able to use this to: take up to about 12,300 as tax-free cash use what s left to get a regular income of around 2,200 a year for the rest of her life Margaret thinks about the amount she earns and spends today. She s not sure this amount of retirement income will be enough for her, even once the mortgage is paid off. She decides to look into working for a bit longer and continuing to contribute. She s interested to find out how much difference it could make to her retirement income from NEST if she started taking it later. Example one: Margaret takes her money out of NEST at age 68 Margaret uses the Pension Calculator again to see what would happen if she changed her NEST retirement age to 68. She sees that she might get a retirement pot of over 54,800. She could use this to take up to around 13,700 as tax-free cash, plus a regular income of around 2,430 a year for the rest of her life.

6 Example two: Margaret takes her money out of NEST at age 70 Margaret uses the Pension Calculator again to see what would happen if she changed her NEST retirement age to 70. She sees that she might get a retirement pot of just under 60,500. This is almost 11,100 more than the value at age 66. She may be able to use this to take up to around 15,100 as tax-free cash, plus a regular income of around 2,840 a year for the rest of her life. Note: Please let us know if you decide to change your NEST retirement date. This will help us make sure we manage your retirement pot to be ready for the date when you want to take your money out. Case study three Important information on these examples We ve used a fictional character for this case study. It s designed to give you an idea of the effects of working for longer and contributing more. The amount we ve estimated for Margaret s retirement pot isn t guaranteed, but it shows that what you do now could affect how much you get when you take your money out of NEST. In the case study, Margaret gets basic rate tax relief from the government. This comes to a quarter of her own contributions. All contributions are shown in today s money this is explained at the bottom of this page. The contributions to Margaret s pot actually increase each year in line with inflation. Margaret s retirement pot is invested in a NEST Retirement Date Fund. Each year, we ve assumed that her pot grows in value because of the return on her NEST investments, minus the charges she pays to NEST. We assume this growth is about 3 per cent more than inflation for every year until Margaret s NEST retirement age. Today s money All the amounts are worked out in today s money, which means we re showing what Margaret s retirement pot may be worth today. This is different from the amount she ll actually get when she takes her money out of NEST. Here s an example: Margaret s NEST retirement date is 30 years away. She s been told that on this date she could get a retirement income of about 100 a week in today s money. This means her weekly retirement income would be worth about the same as 100 a week is worth today. To put it another way it would buy her the same amount of goods that 100 buys her today. Prices usually go up over time because of inflation. We assume that inflation will be 2.5 per cent each year. Over time, the effect of inflation builds up so, as an example, in 30 years it will take 210 to buy what 100 buys today. That means Margaret s weekly retirement income could actually be 210 a week. This sounds like a lot more than 100. But because of inflation this 210 would only buy her the same amount as 100 buys today. That s why we say that 210 in 30 years time is 100 in today s money. NEST Corporation All rights reserved. This information does not constitute financial, investment or professional advice and should not be relied upon as such. Reproduction in any form of all or any part of this guide is not allowed. NS124 NCS3 02/2013