Could you afford to save £800 a month?
Unless you’re lucky enough to have won the lottery, putting £800 a month into your pension probably seems like a pipe dream.
Yet that’s exactly how much the Institute of Actuaries says we need to save every month of our working lives to afford a ‘moderate’ retirement.
According to the Pension and Lifetime Savings Association (PLSA), a moderate retirement is defined as one which provides you with financial security and flexibility, whilst a comfortable retirement will give you additional financial freedom and some luxuries.
If you want a comfortable retirement, then the figures become even more startling. The Institute claims that you’d need to save a staggering £1,755 a month during your working life – more than many people earn each month.
Mark Williams, chair of the Institute of Actuaries Pensions Board said: “We appreciate that these savings goals are high, and to many, they will appear daunting. But as actuaries, it is our role to ‘do the maths’ and we believe that it is in the public interest to demonstrate the potential scale of under-saving, and the impact it could have on people’s retirement prospects.”
Most people will never be able to afford to put away the vast sums that the Institute of Actuaries say we need save, but that doesn’t mean you’ll face a retirement in poverty.
To achieve a ‘minimum retirement’ income, the Institute concluded that workers should save a much more manageable £86 a month, which should be covered by the contributions you and your employer make under auto-enrolment.
A minimum income should be enough to cover all your needs, and still leave you with a bit left over for fun. Roughly speaking, the PLSA says a single person needs around £10,000 a year in retirement to achieve the minimum living standard, £20,000 for a moderate standard and £30,000 for a comfortable retirement. For couples, these figures rise to £15,000, £30,000 and £45,000 respectively.
Boost your pension pot
The most important thing to remember is that the more you can save for retirement, the better. That doesn’t mean crippling yourself financially by putting every penny into your pension. Instead, just try to squirrel away a little bit extra in those months when you have some spare cash.
It’s worth reviewing your pensions and comparing them to the best in the market so that you can be certain they’re working as hard as they possibly can for you. For more information on this read our recent blog on how to compare pensions.
You might, for example, find that your pension has high charges, or there’s only a limited range of funds to invest in, so you may be better off transferring to a different pension. Make sure you seek professional pension advice if you’re not sure whether to switch your pension though as that you may not always be able to improve on what you’ve got.
Don’t forget the State Pension
Remember that the State Pension will usually go a long way towards covering your costs in retirement. If you qualify for the full State Pension, you’ll currently get £8,767 a year.
You’ll need at least 35 qualifying years of national insurance contributions (NICs) to be eligible for the full amount and a minimum of 10 years of contributions to qualify for any State Pension.
You can find out how much State Pension you might be entitled to here.
Find out how much you’ll need in retirement
Most of us have no idea exactly how much we need to save for retirement, but we’ve designed a handy pension calculator to tell you just that.
All you need to do is answer three simple questions, and our calculator will tell you what sort of annual income you’ll need for either a comfortable or more modest lifestyle at retirement. It also factors in how much the State Pension will provide you with.
You can adjust your retirement age using the sliding scale to see how retiring later or earlier affects the overall amount you’ll need to save.