Pension savings: How much money should you have saved for retirement? | Personal Finance | Finance
While rising living costs continue to add pressure to minds and wallets, concerns have been rising around pension savings and how this period may bear an impact. While most people will get a state pension from the Government to cover basic needs, people are urged to save a little extra to maintain a decent standard of living. But just how much should people be saving?
The amount a person needs to save toward their pension depends on how much they want to live on when they retire, and people can figure out how much this might be with some forward planning.
Generally, as a base mark, some advisers recommend people save around 10 times their average working-life salary by the time of retirement.
However, if someone were to earn the UK average wage upon retirement today, assuming a retirement age of 65 and wanted to maintain their current lifestyle, data suggests that the average person would need enough in their pension pot to guarantee that income for around a 21-year retirement, based on current life expectancy statistics.
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So, how much money should a person typically be saving each month for their pension?
The benefit of compounding, which is what pensions work on when they’re being invested, means that the gains – in theory – get exponentially bigger over a longer period. So, the earlier a person starts, the more they can amass over time.
According to Unbiased, to amass savings 10 times a person’s average yearly salary, they should save around 12.5 percent of their monthly salary.
Workplace pensions can make this more achievable as the employer will typically match – or exceed – an employee’s contributions, meaning they’ll only need to put away half as much.
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The crucial component here is the compounding factor and this is why it’s important to begin saving as early as possible.
Paul Clifton, Director, wealth planning at Arbuthnot Latham, commented: “Pensions form a key part of most people’s wealth strategies. From initial tax benefits and employer contributions to inheritance tax benefits, they are one of the most efficient investment vehicles.
“However, there are many elements to consider from risk appetite to when and how you might want to access your pension.
“There is no ‘one size fits all’ approach, and professional financial advice is key to ensure your wealth management strategy is designed to meet your future financial – and lifestyle – goals.”
