You’ve probably seen lots of scary headlines about the amount we should all be saving for retirement.
Recent research from the Institute of Actuaries, for example, found that to achieve a ‘moderate’ retirement, you’d need to save a whopping £800 a month throughout your working life from the age of 22 until you retire at 68. This would provide an income of £20,200 a year in retirement net of tax, which the Institute claims is enough to cover most people’s essential bills and a few luxuries such as a two-week annual holiday in Europe. This figure includes a full State Pension amount (£9,339 in the 2021/22 tax year). Find out more about how the state pension works here.
Putting away this amount every month 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 need to retire 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.