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Saving for retirement

Saving for retirement

How much should you save for retirement?

Making sure you are saving enough for retirement can be tough and working out exactly how much you will need to be comfortable can be difficult. We take a look at how much you might need for retirement and how you can achieve it.

How much will I need?

The first thing you will need to find out is how much income is required when you stop working. The Department of Work and Pensions recommends that those on an income of £13,000 or less should aim to have 80% of their salary a year for retirement, so if you had an income of £13,000 you would need £10,400 a year to live at the same level of comfort.

Saving for retirement

Someone earning more than £55,000 should aim to have 50% of their salary a year for retirement, so enough savings to have an annual income of £27,500 to maintain the same lifestyle. Other experts recommend setting aside ten times your salary for retirement, so someone earning £40,000 a year would need to save £400,000 for their retirement fund.

The only way of knowing exactly how much you need, is to calculate your retirement outgoings. Everyone is different, and your retirement plans might differ to someone else’s. A good place to start is with your essential spending such as utility bills, food shop, running your car and repairs and maintenance on your home.

Next is to think about the kind of lifestyle you want, you will need to factor in the additional costs of holidays, meals out and any hobbies you currently have or may take up in your retirement. It is also important to factor in practical considerations, will you be downsizing to a smaller property? Or moving into retirement accommodation? It is necessary to factor in if your spouse will be relying on your pension and plan accordingly.

Remember your state pension

Your state pension will also help to achieve your retirement goal. You can get a forecast on the gov.uk website to find out how much you can expect to receive. The full amount of £166.55 works out at £8,296 a year so is important to factor into your retirement plans.

Life expectancy

Many savers expect that they will only need enough savings to last them a few years, it is a costly mistake to underestimate your life expectancy. Someone retiring at 65 could live another 20 years if not more so it is important to have enough savings, you may be lucky enough to live till 100!

How much should you save?

This depends on two things, how much you need and your age. For example, if you start paying 12% of your salary in your 20’s into a work place pension you may receive a good level of retirement income, but if you only start saving in your 40’s you may need to pay in closer to 20% to receive the same level of income.

Contributing any level of income into your workplace pension is a good place to start, your employer will make contributions too and many employers offer more than the bare minimum required by auto-enrolment pensions. You will also receive income tax relief on any contributions made into your pension scheme.

There are many pension calculators available which allow you to put in your age, salary, required pension income and any current pension contributions, this can help you see how much you still need to save and how it can be achieved.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551

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