When might be a good time to start saving?

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 1: 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 £9,600 in total. She also gets 40 years' worth of contributions from her employers, which adds up to £7,200. She gets a further £2,400 tax relief back from the government.

So the total amount contributed over the 40 years to her retirement pot is £19,200.

These contributions have plenty of time to grow. She receives about £14,900 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 £34,100 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.

Example 2: 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 1. 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 £3,600. On top of this she also gets the same total amount of tax relief as in Example 1.

Her money has less time to grow. She only receives £3,860 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 £14,700 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

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 3 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.

Here's an example of how today's money works:

• Sally'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 Sally'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