Every month, more than ten million people get some money to retire. But will we save enough to be able to live comfortably later and retire when we want?
Surprisingly few people are able to answer this question. Although one in four wants to retire at the age of 60, many simply have no idea what their retirement savings will allow.
That’s why The Mail on Sunday has teamed up with the Royal London pension and investment business to reduce retirement.
We looked at how much someone would have to save each month to afford a minimum, moderate or comfortable pension.
Life is a beach: Although one in four wants to retire at the age of 60, many have no idea what their retirement savings will allow them to
We’ve also calculated what this monthly amount would have to be if you wanted to retire at the age of 55, 60, 65 or 70. Here’s what we found.
How we worked out the savings numbers
No two retirements are the same. The amount you need will depend on many variables, including the type of lifestyle you want, the state of your health, your current expenses, who you live with, and many more.
The numbers are only a guide to get an idea of the level of savings you will need to consider.
For these calculations, Royal London assumed that pension contributions were fixed each month and that investments were growing at five percent a year, inflation was two percent, and annual management fees for your pension were 0.5 percent.
They also assumed that the pension fund would be used to purchase a single annuity that would provide a lifetime income.
In fact, many savers have chosen not to buy an annuity, but rather to manage their own income by drawing.
The data used for minimum, moderate and comfortable retirement are taken from the calculations of the Association of Pensions and Life Savings.
The annual amounts are GBP 10 900, GBP 20 800 and GBP 33 600 per person per year. These figures assume a full state pension of GBP 9 339 per year.
A minimum income would cover all your needs with a little left over for entertainment; moderate offers greater financial security and flexibility; and a comfortable income with even more financial freedom and a little luxury.
When you start is as important as how much
When you start saving for retirement, it is just as important as how much you save each month.
If you start early, not only will you have more time to build a substantial pension fund, but thanks to the strength of compound interest, the pension contributions you make early will have time to grow without having to make any extra effort.
So, for example, if you want a moderate retirement lifestyle from the age of 65, you would have to save £ 355 every month from the age of 22.
But if you started saving at the age of 40, you would have to save almost twice that amount – GBP 690 to have the same pension.
In fact, these retirement contributions are so valuable at the beginning of your career that if you saved £ 100 a month (20 years of savings) from the age of 18 to 38 and then stopped, you would probably have more at retirement. than saving 38 £ 68 a month (saving for 30 years).
If you want a moderate retirement lifestyle from the age of 65, you would have to save £ 355 every month from the age of 22
Postpone a few years for a richer pension
The easiest way to achieve a comfortable retirement is to start saving early, regularly and saving as much as you can.
But it’s easier said than done. When times are tense – as will be the case this year, especially with rising household accounts and inflation – it can sometimes be difficult to prioritize events over distant years or even decades. So another option is to postpone retirement if you can, as our numbers show.
For example, to get a comfortable income from the age of 55, you would have to save a massive £ 1,360 a month from the age of 22. However, if you postpone retirement until the age of 70, you would have to save £ 555 a month.
The initial retirement age has been removed, so that in most cases employers can no longer force employees to retire. The amount of help and resources available to older workers who want to retrain or want better support in the workplace has also improved in recent years.
Learn more at gov.uk/government/publications/help-and-support-for-older-workers.
If you decide to work after reaching the state retirement age, you can supplement your income with a state pension to maintain your standard of living while working fewer hours.
Alternatively, if you find that you earn enough to live on, you may want to consider postponing your state pension to increase your payments when you start receiving it. For each year you defer your state pension, you will receive an extra £ 10.42 per week when you start receiving it.
If you want to retire early, save hard
An Aviva survey found that one in five workers who hope to retire early plans to do so when they reach the age of 55. And of those who have retired early, two-thirds are happier.
Start saving early and retiring at age 55 may not be an unattainable dream. For example, if you save £ 90 each month from the age of 22, you should have enough for a modest retirement lifestyle from the age of 55.
Put it at £ 640 a month and you should afford a moderate lifestyle.
For the more luxurious you will have to save £ 1,360 a month.
The best way to achieve a comfortable retirement is to start saving early, regularly, experts say
Your state pension will do a lot of hard work
All figures so far assume a full state pension. If we take this out of the equation, we find out how valuable the state pension income is for retirees.
For example, if you want to retire at a middle-income age of 65, you would have to save £ 640 a month from the age of 22 if you did not have a state pension.
But as already mentioned, you would only have to save £ 355 each month to achieve the same state pension income. For most retirees, the state pension will form the basis of their income.
For someone of the same age who wants to retire with a middle-income retirement at the age of 60, he would have to save £ 875 a month if he did not have a state pension – £ 480 a month with a full state pension.
However, younger workers may want to be a little careful not to rely too much on him.
As our population ages, the cost of providing the current state pension continues to rise and there is no guarantee that the future government will not make it less generous in the name of affordability.
After all, the state retirement age is moving up for this reason and the state pension triple lock will be broken this year so that costs remain low.
Remember … your workplace also helps
Saving £ 355 every month from the age of 22 – or £ 690 a month from the age of 40 – just retiring on a modest income at the age of 65 can sound very challenging. And for many people it will.
Keep in mind, however, that not all of this monthly amount may come from you.
Employers are now required to contribute at least three percent of your salary to your pension, while workers must pay five percent.
Some employers are even more generous. For example, if you save £ 355 a month for retirement and this amount reaches the minimum allowable contribution of eight percent of your income, £ 133 will come from your employer and you will only have to pay the remaining £ 222.
So saving for a company pension is always worth it if you can.
Sarah Pennells, a consumer finance specialist at Royal London, says: “If you are retired in the workplace, there may be ways to pay a little more.
“For example, many employers match employees’ pension contributions above the minimum they must pay under the automatic enrollment rules, up to a certain limit.
“This means that if you pay extra in retirement, your employer will pay for it. If you get paid, you may be able to exchange some or all of your retirement contributions. ”
Remember that pension contributions are tax-exempt. This means that they are either deducted from your salary before the tax is paid, or you can request a tax refund later through your tax return or by contacting Revenue & Customs.
Retirement savings can be bumpy
For the purposes of our calculations, we have assumed that contributions are provided consistently week after week.
In fact, this will rarely happen. There may be periods of unemployment, rest periods for parental or caring responsibilities, poor health or retraining.
Although it is difficult to predict details that could get you out of work, it can be safely assumed that you may have time away from the workplace at some stage.
Therefore, it may pay to save more when you can to compensate for times when you save less.
Likewise, if you receive bonuses at work or have other windfall earnings, it is always worth considering retiring some of it.
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