How much do I need to save for my retirement? - scaling the pensions mountain

Retirement can be an expensive business. Living longer means we need more in our retirement pots to fund the lifestyle we desire in later life. So, how much harder is it to climb the ‘pension mountain’ in recent years? Much harder it turns out…

New research from mutual insurer Royal London has revealed the extent of the challenge, finding that a pension pot of £260,000 is needed in order to avoid an uncomfortable retirement for the typical worker. This ‘pension mountain’ has grown in size in real terms by three quarters since 2002, when it stood at a relatively modest £150,000. For those younger generations who can’t afford to get on the property ladder, the pension mountain they need to climb is even bigger. This is due to lower levels of home ownership, which may mean having to continue paying rent in retirement. Renters in retirement face a pension mountain of £445,000, some 71% higher than the financial challenge faced by homeowners seeking to avoid an uncomfortable retirement.

How much do I need to save for my retirement?

The answer is of course very different for all of us. The amount you need to save for retirement will depend on a number of factors (among other considerations):

  1. How much income do you need to live comfortably?
  2. How much do you have saved already?
  3. What age do you plan to stop working?

To calculate the figure for their own research, Royal London considered an average earner on a salary of £27,000 a year. They assumed a full state pension of just over £8,500 a year and no mortgage costs to pay in retirement. Assuming that workers who can retire on two thirds of their pre-retirement wage will see no fall in their standard of living when they stop work, average earners would need a private pension income of just over £9,000 in addition to their state pension income.

Commenting on the research, Helen Morrissey, personal finance specialist at Royal London said: “This research is a reminder that when we save for retirement we are chasing a moving target. If our retirement pot is going to support us through a longer retirement and in an era of lower interest rates, we are going to need to build a much bigger pot than in the past. More worrying still, we can no longer assume that we will be mortgage-free homeowners in retirement. For those unable to get on the property ladder during their working life, a large private rental bill needs to be factored in to retirement planning. For all of these reasons, we cannot afford to be complacent about current levels of retirement saving.”

If you’re concerned about climbing your own pension mountain, it’s never too late to start planning for retirement. A great place to start is a calculation of your own number. Contact Blackadders Wealth Management to help you calculate a ‘pension mountain’ figure that is personal to you, so you can get to work on achieving a comfortable retirement.