How much do I need to retire?

Getting ready for retirement  

You probably don’t want to work forever. So it’s important to plan for your retirement. That usually means saving up and getting a retirement fund in place, so you’ll have enough cash coming in when you want to work less or give up work completely. 

Are you Retiready?

In 2014, we decided to find out if the UK was ready for retirement. We discovered that just 8% of people were on track for the retirement they wanted. Around half of the people we spoke to said they hadn’t taken any action at all to build a retirement fund. That’s worrying, but if it sounds like you, don’t panic – it’s never too late to start saving for your retirement. 

How much do I need to retire?

The following video is about Tomorrow Starts Today and has a transcript (see below).

Everyone’s different. And it’s likely the things you spend your cash on now will change when you stop working. For example, you may be planning to pay your mortgage off before you retire. And that costly commute will become a dim and distant memory. Even so, remember you won’t have a regular salary coming in any more – and as we’re all living longer these days, any money you save now may need to last for a long time.

Inflation is another thing to think about. Inflation is when the price of things goes up – so the £10 you have today won’t buy you as much in the future. It can be a big deal, especially if basics like heating and food get dearer. And that’s before you start to think about luxuries, like travel or taking up that hobby you always fancied. 

Don’t worry if you don’t know where to start – help is at hand. Our Retiready Score can help you get to grips with how much you need to save into a pension now, to help you enjoy the future.

And if you’re already quite close to retirement age, our retirement income planner can help you see what immediate steps to take to get on top of your savings.

The following video is about Get your Retiready Retirement Readiness Score and has a transcript (see below).

Is having a pension risky?

A riskometer representing the leve of risk involved in pension saving

As a general rule, the more you save, and the longer you save for, the more your pension pot will grow. That makes sense. But there are other things to think about too; like how you feel about risk(Opens new window).

When you start a pension, your pension provider will take your savings and invest them in the stock market for you. That comes with an element of risk – investments can go down as well as up. Generally though, pensions are thought to be one of the safest ways of saving for retirement.

When it comes to investing your pension savings, your provider will usually give you a choice about the kind of fund you want to invest in. Some funds have higher risks than others. Why would you choose a higher-risk investment? Well, usually, higher risks bring the chance of higher rewards, while lower-risk funds are safer, but usually offer smaller returns.

Your attitude to risk might change as you get closer to retirement. For example, some people are happy to take risks when they’re younger, because there is time to top up their savings later on.

And some people prefer to avoid the stock market altogether and save for their retirement in other ways, like through a Cash ISA. It’s your choice – do what’s best for your circumstances and remember you can always ask an Independent Financial Advisor for advice or contact Aegon Assist for guidance.

How much should I save? 

The Money Advice Service’s handy pension calculator can help you get an idea of what you need to do to get the retirement you want. You can play around with different numbers to get a rough idea of what you need to save. As a rule of thumb, the more you can save, the better.

Remember that when paying into your pension you receive tax relief on any contributions you make within limits: For every £80 you invest, the government adds £20. If you’re a higher or additional rate tax payer you can make a claim for extra tax relief.  So the taxman actually tops up your savings.

A small stack of green coins

For example:

Jill is 30 and wants to retire when she’s 68. She earns £35,000 a year and is aiming for a monthly income of £1,750 when she retires – around 60% of her current pay. She pays 5% of her income into a workplace pension scheme and her employer adds a 3% contribution. That’s a great start. But even taking her State Pension into account, Jill’s savings are still going to fall short of her target. Even saving just a little bit more, could make a real difference to her future. 

Saving for retirement 

Once you have a broad idea of how much you need to save, you need to work out what type of savings you need to set up. Many people choose between saving in either a pension, or an Individual Savings Account (ISA). Or, you can use a combination of both. Our simple guides to pensions and ISAs will answer most of your questions.

ISAs and Pensions are both tax efficient ways to save but there are other ways to plan for your retirement. Investing in property, particularly ‘buy to let’ is a popular investment choice. But remember, every investment has risks and even though property has traditionally been seen as a safe bet, there’s no guarantee house prices will rise in future. Plus, recent changes mean renting or owning property isn’t as tax efficient as it used to be. And of course, if you’re thinking about becoming a landlord, there’s also the hassle factor of finding good tenants and looking after them to think about.

Don't hang around

The sooner you start to save, the more time your money has to grow. But remember to keep an eye on the future. If your circumstances change, change your plans. For example, if you get a promotion, why not put some of the extra money into your pension? Or maybe use the extra cash to clear a credit card or loan. After all, some experts believe it’s as important to pay off your debts as it is to save.

But whatever your plans, it’s kind of nice to think that if you save towards your retirement  now, you can relax and look forward to the future you want.