Working out how much you need to save for retirement can feel a bit like trying to answer the question “how long is a piece of string?”
You might not know yet exactly when you’re going to retire – or what your financial circumstances will be like when the time comes, especially if your income has recently fallen or you’re struggling to make ends meet due to the current cost of living crisis.
But tempting as it may be to just avoid the question altogether, it’s worth getting to grips with roughly how much you should be putting away, so that hopefully once you’re back on track financially you’ll be able to start topping up your retirement savings.
Here, we explain what you need to know. If in doubt, you may want to think about seeking expert help.
How much do I need to retire?
You’ve probably seen lots of scary headlines about the amounts we need for a comfortable retirement.
According to the Pensions and Lifetime Savings Association (PLSA), for example, to achieve a moderate standard of living in retirement, a couple sharing costs and each receiving the new full State Pension (about £11,500 in 2024/25) would need an income of around £43,100 a year. They would need to build up a pension pot of approximately £514,000 to achieve this level of income, according to calculations by Quilter. These calculations assume an escalating income of 3% based on someone who is aged 66 (which is the current age to receive state pension), and an annuity rate of 4.79%. Read more in our guides How the State Pension affects the income you need in retirement and Annuities explained.
To achieve a comfortable retirement living standard, however, a couple each receiving the full State Pension would need to build up total retirement savings of £929,000, based on the same annuity rate. This is to achieve an income of £59,000 a year in retirement (including the full State Pension). Find out more about how the State Pension works here.
Saving up a total of £929,000 probably seems like pie in the sky to most of us, so rather than focusing on these sorts of daunting figures, think about how much is achievable for you.
A good rule of thumb to help you decide how much you should be putting away is to take your age, halve it, and then contribute this percentage of your salary to your pension every month for the rest of your working life.
If, for example, you’re 50, you should aim to save at least 25% of your salary before it’s taxed every month until you retire. That means if you’re earning £2,000 a month, you should ideally pay £500 of this a month into your pension (25% of £2,000).
Of course, that can be easier said than done, especially if your outgoings mean you don’t have much spare cash available each month. If that’s the case, just put away what you can afford to. You might not end up with enough to provide you with a comfortable retirement, but every little helps and you’ll also benefit from tax relief on your contributions.
How much will I end up with if I stick to auto-enrolment contributions?
If you’ve been auto-enrolled into your employer’s workplace pension scheme, under current minimum contribution limits, you’ll be paying in 5% of your salary before tax (of which 1% is tax relief), whilst your employer will pay in 3%, bringing the total contribution to 8%.
It’s worth noting however that these auto-enrolment contributions only have to be paid on ‘qualifying earnings’ of between £6,240 and £50,270 in the 2023/24 tax year. This means low and high earners may in fact have a lower effective contribution than the headline percentage figures. If in doubt, speak to your HR department or workplace pension provider to understand how your workplace pension scheme works.
Some employers will pay in more than the minimum contribution, and you can also pay in extra if you want to. If you’re not able to pay in more though, don’t panic. The Institute of Actuaries says that people making the minimum auto enrolment contributions, and who have a full record of National Insurance contributions (NICs) and so are eligible for the maximum State Pension (£221.20 in the 2024/25 tax year) should be on track to achieve what they call a ‘minimum’ retirement living standard – enough to cover all your needs, with a little bit of spare cash left over.
Based on the Pensions and Lifetime Savings Association’s Retirement Living Standards, a single person would need an income of £14,400 a year to achieve this minimum standard.
Find out more about how auto-enrolment works in our guide How does pension auto-enrolment work?.
How much pension will I get?
One of the biggest challenges you may face when saving for retirement is working out how much income your retirement savings are likely to provide you with.
It can be a good idea to use a pension contribution calculator to help you figure this out. For most of these to work properly, you’ll need to provide your annual income, the current value of your pension pot, and the amount you and your employer contribute to your pension each month to hand.
Bear in mind that none of these calculators can accurately predict the future, and factors such as investment performance, inflation, wage growth and changes to the State Pension will all have a considerable impact on your retirement funds and the income they’ll provide you with.
Read more about the different annual and lifetime pension allowances here and about tax relief in our guide How pension tax relief works.
Where can I find out how much I’ve got in my pension?
Your pension provider should send you a statement every year telling you what your pension is worth. If you can’t find yours, give your scheme administrator a call and ask them for a current value.
To help ensure we’re all better informed about our pension savings and how much we should be putting away, anyone who’s over-50 and has pension savings will receive a ‘Wake-Up’ pack from their pension provider.
This will tell you how much you’ve already saved, what sort of income it might provide you with in retirement, where your money is invested, and how much you’re paying in charges. These packs will be sent out every five years until you start taking money out of their pension pot.
Planning for retirement isn’t always straightforward, but the Government’s Pension Wise service, run by the Pensions Advisory Service and Citizens Advice, provides people aged 50 and above with free guidance on their pension choices at retirement. You can give them a call on 0800 138 3944 to book a free appointment, or you can book one via the website.
If you’re not sure whether you’re saving enough, or you don’t fully understand where your money is being invested, you might want to speak to an independent financial adviser who can recommend the best course of action based on your individual circumstances.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
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