How much do I need to save in my pension? How much will I need to save into my pension now?
So we’ve told you roughly how much you’ll need to save to provide what you deem as a ‘comfortable’ retirement and how much will make you happy. The next challenge is to make sure you’re on course to achieve your targets.
How much do you need to save each month?
We’ve calculated how much you’ll theoretically need to save per month as an individual in today’s money if you started paying into a pension at different ages to achieve target retirement incomes of £15,000 and £30,000 per annum (before tax). Your future state pension age will be vary depending on how old you are.
The calculation includes what you’ll get from the state pension and the remainder made up by taking out money each year from an income drawdown plan to get your annual income to £15,000 (£7,304) or £30,000 (£22,304). The state pension counts for a smaller proportion of the £30,000, so the savings needed are three times, rather than double, those required for £15,000.
Find out more: Income options for your pension under the 2015 rules - your options analysed
We have projected the fund pension remaining invested in income drawdown and growing at 6% per year and being drawn down to zero 20 years after retirement. This is based on the fact that life expectancy at 65 is 19 years for men and 21 years for women.
Many people will now opt for income drawdown under the new rules but income levels, and the size of the required pot, will of course vary according to investment performance.
Getting your pension savings on track
The projections contain some quite scary numbers, although saving £165 per month from your mid-20s is obviously more palatable than having to find £644 if you leave your retirement saving until later in life. On the other hand your monthly income should rise as you move through the decades and if you are in a company pension scheme your employer will be contributing some towards your target amount.
The good news is that although you probably won’t be saving at the above levels in your 20s or 30s, you’d have probably kicked off your retirement pot at least, and won’t have to start saving from scratch in your 40s and 50s.
Many of us will still be some way behind what we want to achieve with our final pension income. The simple answer is to put more money into our pension at an earlier age, but this isn’t always possible with all our other financial demands. Which? rounds up what you need to be thinking about:
The Which? retirement centre - all you need to know all the financial side of your retirement.
- make your everyday savings work as hard as possible.
Sort out any debt - make sure that debt doesn't negate your ability to save.
- Pension income options under the new rules - the pensions changes in April 2015
- What's happening with the state pension in 2016? - what you'll get from the state
- My Retirement: What I need to know - the one-stop shop for pensions guidance
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