How much money should you save if you’re going to enjoy a secure retirement? Sometimes that feels like a ‘how long is a piece of string’ question because nothing ever stands still in life or economics, so calculating how much money you should set aside to ensure a comfortable income when you stop work probably leaves you tempted to dust off your crystal ball… if only predicting the future was so easy! But, according to a recent survey by the UK complaint website Resolver, ‘Half of the UK aren’t saving enough for retirement’ and Liberal Democrats’ leader Vince Cable has even referred to the impending retirement crisis as “the elephant in the room”. One thing’s for sure, the UK population is growing older and a report from Government advisers has warned that the National Insurance Fund – which pays state pensions and other social benefits – will run out of cash during the 2030s. It’s vital that you take control of your own retirement future.
So… how much should you save to enjoy a secure retirement?
Answer: As much as you can possibly afford.
Consumer champions Which? polled their retired members to find out where their money was being spent and discovered that most households spend around £2,200 a month on all basic expenditures and some luxuries, with many retirees spending an additional £4,500 a year on holidays and travelling. This means (according to Which?) that you’d need to allocate at least £39,000 a year during your retirement if you’re going to live comfortably and enjoy a new car every five years. And, of course, that’s without the benefit of the crystal ball we mentioned earlier.
Life insurance provider Aegon says that the average pension pot in the UK currently stands at nearly £50,000 with men saving an average of £73,600 and women saving an average of £24,900, so you don’t need a calculator to work out that Which?’s current £39,000 a year recommendation is far out of reach for most people.
Let’s break it down further…
At the beginning of this year, Scottish Widows calculated that a 30-year-old earning an average £27, 271 salary and contributing the current minimum to their workplace pension will achieve an annual income of between £9,734 and £14,047 when they reach retirement age – less than half of the salary they are living on now.
According to research conducted by LV=, 62% of 45-54 year olds don’t even know how much they’ve saved for retirement, with average pension savings among this age group being only £71,342. LV= also discovered that most of the people surveyed spent more time researching their last holiday than considering retirement provisions.
Aegon tells us it gets a little better in the 55-65 age bracket, with the average person having saved £105,496 in pensions… but that doesn’t sound quite so positive when you consider that a pension pot of £100,000 would only provide an income of about £4000 to £5,000 in retirement. What about people who don’t even start saving for their pension until they’re in their 50s? Well, they’ll currently need to squirrel away £1,445 a month if they’re going to achieve an annual £23,000 retirement income.
You’ll no doubt agree that none of the above makes good reading, but wherever you are right now in your saving-for-retirement journey, there’s a lot you can do to make the future brighter.
Take action now…
If you’re self-employed without a pension, you can’t afford to ignore Vince Cable’s ‘elephant in the room’ any longer. Seek professional advice, secure the personal pension that’s right for you, and begin your retirement planning as soon as possible. Depending upon your age, retirement may still seem like it’s a long, long way away but trust us, time has a nasty habit of picking up speed the older you get. It’s never too early to get your retirement plans in place.
If you work for an employer, you should hopefully already be auto-enrolled in your company’s pension scheme. That’s great, because the contributions your employer makes will help grow your pension pot even faster. At the moment, the minimum contribution you’re required to make is 3% (rising to 5% in 2019) but if you can contribute more that’s even better. And if for some reason you’re not currently enrolled in your company’s scheme, join it as soon as you can.
Whatever you do, don’t underestimate how much you need to save for your retirement and don’t forget the pension contribution limits. This tax year (2018-19) the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. However, there are exceptions to this rule which is one of the many reasons why it’s always important to seek the most expert, professional and trusted pension planning advice you can.
Here at Moyes Investments, we’ll help you find the pension plan that’s right for you and /or advise you whether the pension arrangements you’ve already got in place are still on track to meet your needs once you retire. In fact, we can even conduct a complimentary state pension check for you to estimate how your state pension currently works out under the existing rules. Your pension pot is a vital element of your wealth management, so let’s work together to make your retirement brighter. Call our friendly team today on 01638 429975 or email firstname.lastname@example.org and we’ll do the rest.