According to recent research 2 , people who wish to retire at the age of 65 with pension income (including a full State Pension) equivalent to the average UK annual salary of about £28,000, now need to accumulate a pension pot of nearly £450,000 in order to fund their retirement until they are 100 years old. The Office for National Statistics says increasing numbers will attain this age in the coming decades.
Start saving early
In addition to stating the amount required to fund a comfortable retirement, the analysis also highlights how investing regularly across a working life provides the best hope of reaching that target. Indeed, it shows that an individual who begins saving at 25 years of age needs to invest around £235 a month to accumulate a suitably sized retirement fund. However, a delay of ten years sees this figure rise to £428; while someone who only begins saving at the age of 45 would need to put aside £859 a month to attain a pension pot of the required size. These projections are based on a defined contribution scheme entering a drawdown pension arrangement on retirement. Another option at retirement is to buy an annuity that provides an income for life regardless of age at death.
But better late than never
Although in an ideal world it is certainly best to start saving for retirement at the earliest opportunity, other financial commitments can inevitably make this difficult. And it’s important to remember it’s never too late to save for retirement. Employer contributions, along with favourable tax treatment and potential for investment growth mean that any pension contributions made in later life can still have a big impact on your standard of living in retirement.
Prioritise pension saving
While saving for retirement can seem to be a daunting task, the sooner you engage with the topic the better the chances of being able to afford the retirement you deserve. Although it may still seem to be a long way off, you can guarantee retirement will creep up much faster than you expect. And careful planning now will undoubtedly make a substantial difference to the amount of money ultimately available for you to enjoy in retirement. 2 AJ Bell, June 2019