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?

Every year, Aegon find out how ready people are for retirement. Recently, we discovered that only one in four people believe they are on course to achieve the retirement income they think they need.1

That's worrying, but if it sounds like you, don't panic - it's never too late to start saving for your retirement.

1 Aegon Readiness Report April 2019

How much do I need to retire?

Everyone’s different. And it’s likely the things you spend your money 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 life expectancy is increasing, 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 more expensive. 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 value of an investment can fall as well as rise and isn't guaranteed. It's particularly important to remember this as you get close to retirement as your investments may not have time to recover from any losses.

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 has the potential to 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 for you. That comes with an element of risk – investments can go down as well as up.

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. Please remember that the value of an investment can fall as well as rise and isn’t guaranteed. You could get back less than you originally invested.

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 into a personal pension, the government adds £20. If you pay higher than basic rate tax - either as a UK or Scottish taxpayer -  you can make a claim for extra tax relief.

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.

This information is based on our understanding of current taxation law and HMRC practice, which may change.

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.

Don't hang around

The sooner you start to save, the more time your money can potentially 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 nice to think that if you save towards your retirement now, you could relax and look forward to the future you want.