Saving for retirement: How much will I actually need?

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Retirement might feel like it's a very long way in the future for you. Maybe you have other priorities, like travelling or buying a home. Building a pension pot might seem like a daunting task but working out how much you might need can break down the process into manageable chunks.

This is a much better strategy than leaving all your retirement planning until you just can't put it off any longer, and it gives you a much greater chance of saving enough. Here's all the things you need to consider to make sure you're prepared.

What age you'll retire

As a nation, although we are pushing back the age at which we retire, we are living longer and may need to budget for more years of later life care.

From 2019, the State Pension age will increase for both men and women to reach 66 by October 2020. The Government is planning further increases, which will raise the State Pension age from 66 to 67 between 2026 and 2028. For those under 30, they may be working until the age of 70.

You can check your estimated pension age using this government tool. The Money Advice Service also has a calculator which can predict your retirement income, and whether it will be enough to fund the lifestyle you want.

But how much is enough?

It depends what 'living comfortably' means to you. There is no definitive answer as everyone's circumstances are different - your age, salary, dependants and financial commitments will all figure in your calculations. What are your spending habits like? Will you be mortgage free when you retire? Are you hoping to give money to family members? Will you have any other income like benefits or dividends?

As a general rule, most people need about two-thirds of their salary in retirement in order to maintain their lifestyle.

Saving for retirement

The earlier you start saving for retirement, the better. Why? Because your money needs time to grow. The power of compound interest means your interest can earn interest, if you give it a chance. A good rule of thumb is to halve the age at which you start saving, and put away that number as a percentage of your monthly salary. For example, if you started saving at 40, you would need to save 20% of your salary each month.

Just putting away a little bit extra from each pay packet could have a big impact on your pension pot and close the gap between the income you want and what you actually receive. For the typical worker over the age of 45, saving an extra £86 a month could make the difference between living a financially comfortable retirement and struggling in later years, according to research from Aviva.

Don't forget, your pension gets a 20% boost from the government in the form of basic rate tax relief, and your employer may also pay in or even match your contributions. This is free money, so make sure you take full advantage.


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