Don't let your money go up in smoke, save it instead

Quitting smoking and sorting out finances are two classic New Year’s resolutions. If you need some encouragement to tackle these areas of your life here are some scary statistics to do the job.

We all know that smoking not only reduces your life expectancy but it is also expensive. Over the last decade the price of 20 cigarettes has increased 70% from £4.39 in 2002 to £7.47 in 2012.

Research by annuity provider Partnership shows that a 10-a-day 30 year old who has smoked since they were 20 and retires at 67 will have spent £61,000 on cigarettes in their working life. And if that figure isn’t scary enough, if they had invested that £61,000 in a pension growing at 3% they would have £131,000 in their pension on retirement.

Some clever dicks may say that smoking reduces life expectancy and therefore smokers receive more in annuity payments in retirement; this is true.

Annuities are a life insurance policy against living too long which you buy with your pension pot. The amount paid out depends on how much you save and other factors including health and lifestyle choices – the unhealthier you are the more likely you are to die sooner so the insurance company can afford to pay you more income each month.

However, you still need to pay for your cigarettes in retirement unless you have a very specific plan to give up in retirement. So even though smokers receive more income from their annuity, a male smoker would need at least £36,000 saved in their pension just to cover a 10-a-day habit until they die.

In an ideal world every smoker would give up the fags and put the money saved into a pension. In fact we should all put ‘increase pension contributions’ or ‘start pension contributions’ on our resolutions list.

And as for those who aren’t planning to give up smoking, they need to boost their pension saving even more if they want to carry on their habit in retirement.