The steady erosion of occupational pensions, along with the drive to encourage workplace pension saving, has forced many to take charge of their future retirement income.
But how much should you be saving if you want to keep up the kind of lifestyle you’re enjoying now?
While everyone’s needs are different, consumer group Which? has undertaken research that sheds some light on the issue.
A survey of more than 1,500 retired couples found, on average, retired couples said they needed £18,000 a year to cover household essentials, such as food, utilities, transport and housing costs.
But for a more comfortable lifestyle which allows for extras such as European holidays and leisure activities, they needed an annual income of £26,000. The consumer group calculates that to generate that, a couple would need a defined contribution pot of £210,000 in today’s money – alongside their current state pension entitlement.
Based on current retirement ages and state pension entitlements, to generate a £26,000 annual income Which? calculates couples starting saving from scratch need to be saving between them:
◆ £131 a month if they start from aged 20
◆ £198 a month from 30
◆ £338 a month from 40
◆ £633 a month from 50
Fancy a “luxurious” retirement? To achieve this, couples need to build a pot of £550,000, the research found. To build such a pot, couples could need to save between them:
◆ £283 a month if they start from aged 20
◆ £424 a month from 30
◆ £731 a month from 40
◆ £1,657 a month from 50
The calculations make certain assumptions – and as such they are an indication of what people might need to save to achieve the sort of lifestyle they expect rather than a precise prescription.
While some of the figures may look a little daunting, they do show why it’s a good idea to start the savings habit young – especially if you’re hoping to spend your retirement sipping cocktails by a pool.
Encouragingly, the figures also show that even if you’re starting to save later in life, it is still at least possible to build up a decent sized pot.
Which? has a free online guide at which.co.uk/saveforretirement to help people plan their retirement saving. Free guidance is also available to those nearing retirement from the government-backed Pension Wise service.
So how can you boost your chances of hitting your retirement income target?
According to Kate Smith, head of pensions at Aegon, pension saving should be seen as a habit, not a chore.
She says: “An annual income of £26,000 is achievable provided people start saving early. Savings from both partners also have the added bonus of an employer contribution via their workplace pension twice over.
“Realistically, few people will be in a long-term relationship from the age of 20, so it’s important that they take personal responsibility and realise that the buck stops with them when it comes to pension savings.
“The key to building a good retirement pot lies in what you do in the early years to make pension saving a habit and not a chore.”