Saving for retirement: How much is enough?

It’s a question many of us, with years of our working lives still ahead of us and eager to someday retire with a comfortable income, probably ask ourselves every now and then. Even those who are a little closer to kicking back and enjoying those well-earned silver years will naturally be quite concerned with how the global pandemic is affecting economies right now and the direct impact this is having on their own investments and fund values. So, saving really is key in these volatile times to ensuring a worry-free retirement.

But how much should you be saving per month? The answer is of course not straightforward and depends on your existing fund value and your lifestyle expectations when you reach retirement.

Recent research carried out by Fidelity International found that UK households who manage to save seven times their annual household income by the age of 68 should be in a position to retire and maintain a similar standard of living as in their working life, assuming an average household income in the UK with typically two working adults and two state pensions.

It’s a challenging goal indeed and it will come as no surprise that achieving this relies on saving early in your life.

Take for example then an assumption of a 5% annual return, investing £200 a month from the age of 25 with no existing fund value. This will give you £96,000 towards your retirement. The same pot can be achieved by saving £400 from the age of 45. However, the effect of compounding interest has longer to work from age 25 so it will leave you with a pension pot almost twice as large. Great news then if you’re very early on into your working life and haven’t yet started to save for retirement. Those a little closer to that dream of retiring at 65 will unfortunately have to save much, much harder.

Depending on where are you are in your retirement planning journey and your retirement expectations, here are a few stats that might make you either feel somewhat comfortable or a little alarmed. Either way, it’s important to recognise when looking as these figures that if combined with a flexible pension plan such as a SIPP and a suitability qualified and authorised financial advisor, there are ample opportunities to make an existing fund work even harder for you, whatever your age.

£50,000

The current average pension pot in the UK

£260,000 – £447,000

is recommended at retirement, depending on accommodation costs and your lifestyle expectations.

Saving early is key

What you will need annually in retirement to live comfortably

  • Basic living costs: £16,300
  • 6 weeks of holiday each year: £5,100
  • Dining out every 2 weeks: £2,200
  • Home improvements: £3,600
  • Getting new car every 5 years worth £15k: £5,500
  • Health club/Gym membership: £500
  • Shopping trips: £1,600
  • Theatre/concerts each year (avg 1 per month): £1,700

= £36,500 (total annual cost of retirement)

BUT don’t forget about mortgage, healthcare and other unexpected costs!

Sources
https://www.thisismoney.co.uk/money/pensions/article-7154777/Britons-need-pension-pot-447K-hit-65-pension-age-100.html
https://moyes.investments/what-constitutes-a-reasonable-pension-pot/
https://www.fidelity.co.uk/retirement/calculators/retirement-calculator-pi/
https://www.fidelity.co.uk/retirement/saving-in-your-20s-and-30s/

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