Retirement Planning 101: How Much Should You Be Saving?
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Retirement Planning 101: How Much Should You Be Saving?
Your individual circumstances and expectations for the future will dictate how much you need to save for retirement. To be financially secure, you’ll need more than your State Pension alone, which is currently less than the minimum recommended in the Retirement Living Standards.
But what is considered a ‘comfortable’ retirement, and how much should you consider putting away and how soon? We’ve covered the basics in this guide, so you can get on top of financial planning for the future.
How much do I need to retire?
Your personal circumstances will influence exactly how much you need for your retirement. Are you in a one-person household or part of a couple? Will you be residing in London, where general expenses are higher than in most other parts of the UK?
You should also consider what you’ll be spending on once you’ve stopped working. Bear in mind that it might look very different to your essential outgoings now. For example, you could have no rent or mortgage to pay but might want to have more to put towards leisure activities and holidays. Remember that you could be living off your pension for at least 20 years, if not longer.
Pensions UK (previously Pensions and Lifetime Savings Association) talks about three retirement living standards. Matching your vision to one of these will clarify how much you may need to have available to spend each year to live the life you want.
- Minimum – all needs covered, with enough for essential spending and some left over.
- Moderate – greater financial security and some flexibility around spending.
- Comfortable – more financial freedom, with sufficient funds for some luxuries.
According to the latest data, as a rule of thumb, a single person should be able to get by on £13,400 a year. £31,700 a year is considered enough for financial security, while £43,900 or more will likely let you live comfortably. The table below gives you a rough idea of what’s covered in the three retirement living standards:
Minimum |
Moderate |
Comfortable |
|
| House | £200 p/y towards DIY projects | £500 p/y for maintenance £300 contingency |
£600 p/y for maintenance £300 contingency |
| Food | £55 p/w on groceries £40 p/m on meals out |
£55 p/w on groceries £275 p/m on meals out |
£75 p/w on groceries £355 p/m on meals out |
| Transport | No car, minimal rail, and taxi journeys Free bus pass |
3-year-old small car replaced every 7 years £20 p/m taxis £105 p/y on rail fares |
3-year-old small car replaced every 7 years £20 p/m taxis £205 p/y on rail fares |
| Holidays | Week away in the UK | Modest two-week holiday abroad + one long weekend in the UK (off-season) | More luxurious two-week holiday abroad + three long weekend breaks in the UK |
| Leisure | TV licence, broadband, one streaming service £20 p/w for activities |
TV licence, broadband, two streaming services £40 p/w for activities |
Extensive entertainment bundle £55 p/w for activities |
| Personal | £450 p/y for clothing | £1,500 p/y for clothing | £1,500 p/y for clothing |
How much do I need to save for retirement?
Once you know approximately how much you’ll need for the retirement you want, you can calculate how much to save to supplement your state pension and create a retirement savings plan to assess whether you’re on track with your pension income. You can find handy calculator tools online that factor in your projected state pension, existing pension pot value, and current contributions.
Most people save towards their retirement with a workplace or private pension. Many experts recommend halving your age at the time of starting the pension and aiming to save that percentage of your salary into it each year. For example, if you open the pension at 30, aim to save 15% annually.
Other assets, e.g. property or investments, can act as a nest egg to support your pensions.
What if I'm not saving enough?
Your future financial security may be a priority, but not at the risk of your current welfare. If you think you’re not saving enough to meet your goals – which isn’t unusual – don’t panic.
The key is to make manageable changes as soon as possible, to give your money the maximum amount of time to potentially grow while ensuring you can continue covering essential expenses.
There are several things you could do now to help maximise how much money you have for retirement:
Ways to save for retirement
Pay more than the minimum
All employers must auto-enrol eligible workers into a pension plan and match contributions up to a certain limit. Check how much you’re currently paying each month and see if you can increase these contributions, and whether doing so will also lead to more from your employer. You could also pay more into your pension through random lump-sum payments.
Bear in mind that there will be limits to how much you can contribute tax-free, and that money paid into a pension is locked away until you reach 55 (or 57, from April 2028). Any additional contributions you choose to make should feel comfortably affordable.
Find lost/forgotten pension pots
Many of us are guilty of losing track of pensions from previous workplaces, especially if our time at those companies was short-lived. In fact, there’s an estimated £20 billion in lost pensions. Search out old pension details and get in touch with previous providers. You could choose to consolidate your pensions into one pot for convenience.
By consolidating existing borrowing, you may be extending the term of the debt and increasing the total amount you repay.
No idea where to start? The Pension Tracing Service is an impartial service that can help you locate lost pensions and advise on what to do with them once found.
Delay retirement
If you want to give your pension more time to potentially grow, you could delay retirement if continuing work is an option. Increasingly, people are opting for ‘semi-retirement’, reducing working hours to achieve a better work-life balance without risking financial security.
Consider investing in your home with Evolution Money
Remember to review your savings and investments alongside your pensions when calculating how much to save for retirement. Your property is arguably your biggest asset and a foundation of your long-term financial security. Consider investing in it now, so it functions well as your forever home, and to potentially add value, which could help you get more if you choose to downsize for retirement.
Our Secured Home Improvement Loans could let you borrow between £5,000 and £105,000 for property refurbishment, at terms tailored to your budget. Check your eligibility – it won’t impact your credit score – or contact our friendly team. For more information on personal finance, you can visit our help and advice hub.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debts secured on it.
Representative 21.54% APRC (Variable)
For a typical loan of £12,000 over 60 months with a variable interest rate of 21.54% per annum, your monthly repayments would be £310.60. This includes a Product Fee of £1,200.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £18,635.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
