Saving through the ages: what to put away and when

You could consider an app such as Chip or Moneybox to round up every purchase you make and invest the extra in an Isa.

Start to build an emergency fund in cash before investing anything in the stock market, though. Aim for enough to cover your housing, bills, energy and food for three to six months in case you lose your job or have unexpected expenses.

With interest rates so low, a cash Isa does not necessarily look like the most lucrative option. Rates are higher on regular savers and some current accounts and you do not necessarily have to pay tax on savings outside an Isa. You can £1,000 a year in interest tax-free as a basic-rate taxpayer and £500 as a higher-rate taxpayer. You would need a lot of savings to earn anything like this amount at todays sub-1 per cent rates. Most young people won’t get close.

However, returns on savings in cash Isas are tax-free forever so if you are aiming for substantial savings one day the Isa tax benefit may become important.

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You should also consider a stocks and shares Isa. “Start small, keep it simple and invest regularly,” said Emilie Bellet, who runs a website that aims to financially empower women. “Understanding risk can be tricky until you get started, but if you’re young and have more time until you actually need to sell your investments, you can take more risk. This doesn’t mean speculation or gambling, but investing in a balanced portfolio that you understand for the long term.”

Maike Currie, the investment director at the fundhouse Fidelity International, suggests setting up a regular plan investing as little as £25 a month in a stocks and shares Isa.

“Doing this takes away the task of working out the best time to invest. If you’re unsure where to start, think about a global tracker [a low cost fund that replicates the holdings of a stock market] gives you diversification with competitive fees.”

In your thirties

Your thirties are all about building on what you’ve started, according to Emma Chee from HSBC UK. If you haven’t begun investing, start building a medium-term savings pot alongside a pension. Invest any extra money from pay rises, rather than getting used to lifestyle creep, which is where you increase your spending and appetite for luxury as your income increases. You may have a wedding to fund or a property to save for first, though — the average age for getting on the property ladder in the UK is 32.

Only put money that you do not need to access for five to ten years into a stocks and shares Isa.

Don’t forget about the lifetime Isa. You get a 25 per cent government cash bonus up to a maximum of £1,000 a year for every £4,000 you save if you use the money to buy your first property or after the age of 60. You cannot use it for a property worth more than £450,000 and you have to have had the account open for at least 12 months. If you do not meet the rules for withdrawal you pay a 25 per cent penalty, which means losing the bonus, and more.

If you are a higher-rate taxpayer it is more lucrative to put your money in a company pension because of the tax break and the contribution your employer will make. But for basic-rate taxpayers Lifetime Isas are equally generous and more flexible than pensions, so may be suitable if you are self-employed.

This is the decade that many women fall behind with investing or with pensions savings as they take a break for maternity leave or reduce their working hours to take care of small children.

The gender Isa gap has doubled in the past decade to about £3,000, according to Hargreaves Lansdown. Women hold 52 per cent of the UK’s Isas and invest less in stocks and shares than men. If you are in a relationship, discuss how to make the most of your Isa allowance as a couple, and stay invested in the market if you can.

In your forties

Being part of the “sandwich generation”, juggling caring for adult children and older parents, throws up a new range of challenges and financial priorities.

Currie recommends “a balanced investment portfolio might include individual stocks, funds, property, commodities, bonds and cash”. There’s still a long way to go before retirement, though, so you can afford to take some risk.

Neil Mumford from Milestone Wealth Management recommends looking for an actively managed fund with an impressive record; he rates Monks Investment Trust. “The trust aims for long-term capital growth from a global equity portfolio containing a diversified range of growth stocks. The current savage market has seen this trust sink to a one-year negative return — down 25 per cent. But its ten-year return is over 210 per cent.”

If you have children, consider a stocks and shares Junior Isa. Saving £100 a month into a Junior Isa from the day your child is born until they turn 18 would give them £21,600 at 18, according to Fidelity — £32,474 with 5 per cent investment growth and 0.75 per cent fees.

In your fifties

Time to think about what you want your retirement to look like and how much income you’re going to need. Your focus may be using any spare cash to boost your workplace pension, which you can start to draw on from 55.

Rebecca O’Connor from Interactive Investor said: “You may be viewing Isas as an additional source of income in retirement, so what’s happening with your pension in later stages of working life can change how you view Isa investing, too.”

Pension income is taxable whereas Isa withdrawals are tax-free for life. “What you choose to prioritise will depend on your taxpayer status now versus your taxpayer status when you retire,” O’Connor said.

Traditionally advisers have suggested that your fifties is when you start to think about “de-risking” any stocks and shares Isa investments, which means switching from a higher proportion of equities into bond investments to protect yourself from any stock market downturns that occur just as you want to withdraw your savings. Bonds, however, especially government bonds, are unappealing when inflation is high, as it is now.

“In many respects this notion of de-risking is a hang-on from the days when people were required to use their pensions to buy an annuity, a type of insurance contract that provides a guaranteed income for life,” said Jason Hollands from the wealth manager Tilney Smith & Williamson. “Now this is no longer compulsory, most people keep their pension pots invested.”

If your Isa is going to supplement your pension in retirement, then it may need to support you financially for 20 years or more, given average life expectancy.

“Heavily de-risking your Isa or pension too early could mean your savings run out part way through retirement,” Hollands said. He recommends stocks that provide regular income instead. “Attractive equity income funds include TB Evenlode Global Income and the Redwheel UK Equity Income fund.”

In your sixties

A stock market downturn can come out of the blue, so O’Connor suggests that de-risking a few years before you anticipate needing your money is sensible as you get further into your sixties.

“If you plan well, retirement can be a time of freedom and adventure,” Chee said. Create a budget, be realistic and consider how you can generate an income without cashing in investments.”

If you are retired you may consider switching to income-producing investments in an Isa, where the dividends are not reinvested, but paid out to you. But, O’Connor said, if you’re still working well into your sixties you might not need to prioritise income quite so soon.

Don’t forget Junior Isas. If you have grandchildren you could start teaching them about the magic of compound interest from a young age by investing their pocket money.