The surprising amount a person needs to save in each decade of their life for a ‘comfortable retirement’ has been revealed.
Someone aged in their 20s today needs to start saving nearly £500 a month, research from investment management company Fidelity shows, with this figure rising significantly every ten years.
Assuming a starting point of no savings, a 35-year old should start putting away £841 a month, the research shows. This rises to £1,703 at 45 and £4,508 at 55.
These are the amounts that would be needed to hit a ‘comfortable’ retirement salary which the Pensions and Lifetime Savings Association (PLSA) puts at £43,900 a year for a single person. This rises to £60,600 for a couple (meaning £30,300 each).
It’s important to note that the PLSA’s comfortable category is defined as giving a pensioner “financial freedom and some luxuries.” In this bracket, a pensioner is able to go on a few holidays a year, eat out regularly, and keep money aside for household maintenance.
The next bracket down from this is “moderate”, where a pensioner has “financial security and flexibility,” followed by the ‘minimum’ bracket where at least all the basic needs are covered and some may be left over for leisure.
Assuming a retirement age of 65 – which will continue to rise – this means a pension pot target of £700,000 is ideal to fall into the comfortable retirement category.
This depends on a variety of factors however, especially if the pension saver goes down the annuity route.
An annuity is a financial product that provides a lifelong, regular income in exchange for a down payment of savings. For a one person, the PLSA says a fund of around £540,000 to £800,000 is ideal to return a comfortable annual payment.
From age 55 (rising to 57 in 2028), savers can still take 25 per cent of their pension as a tax-free lump sum. This can be done before purchasing an annuity, meaning it can be drawn from that alongside those payments to make up and annual income.
The other most popular pension route is the drawdown option. This involves keeping some or all of the pension pot invested while taking a regular income from it.
However, the longevity of this pension pot will depend on its investment performance. A poor investment performance could see £700,000 run out by age 83 when also taking an income of around £40,000.
However, an average performance could make it last until age 90, while a good performance could carry the funds far past 100.
Further research from Fidelity also shines a light on how much a person should look to have saved at each point in life to achieve a decent retirement income.
By 30, experts recommend an amount in savings worth one times your salary. So for someone earning £30,000, this would mean at least £30,000 in savings – both inside and outside of pensions.
However, the average person is currently just falling short of this target. Latest figures show that in the 25-34 age bracket, an average £28,277 is held in savings – with around £9,500 in ISAs and £18,800 in pensions.
By 40, the guidance rises to twice your salary at that age, and by 50 it’s three times as much. This rises to six times your salary at 60 – a target that many will struggle to reach.
Government figures show that in the 55-64 age bracket, an average of £178,745 is held in savings. This comprises around £41,000 in ISAs and £137,800 in pensions.
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