Are you saving enough to retire when you want?

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Every month, more than ten million people squirrel away some cash towards retirement. But are we saving enough to live comfortably in later life – and retire when we want? 

Surprisingly few people are able to answer that question. Although one in four aims to retire at age 60, many simply have no clue what their pension savings will afford them. 

That is why The Mail on Sunday has teamed up with pensions and investment business Royal London to crunch the retirement numbers. 

We have looked at how much someone would need to save every month to afford a minimum, moderate or comfortable retirement. 

We have also calculated what that monthly sum would have to be if you want to retire at age 55, 60, 65 or 70. Here’s what we found. 

How we worked out the savings figures 

No two retirements are the same. The amount you will need will depend on a multitude of variables, including the type of lifestyle you want, the state of your health, your normal expenditure, who else you live with and much more. 

The figures are only a guide to give you a sense of the level of saving you may need to consider. 

For these calculations, Royal London has assumed that pension contributions are fixed every month, and that investments grow at five per cent a year, inflation is two per cent, and annual management charges on your pension are 0.5 per cent. 

They have also assumed that the pension pot will be used to buy a single life annuity to provide an income for life.

In reality, many savers are choosing not to buy an annuity, but rather to manage their own pension income through drawdown. 

The figures used for a minimum, moderate and comfortable retirement are taken from calculations by the Pensions and Lifetime Savings Association. 

The annual amounts are £10,900, £20,800 and £33,600 a year respectively for a single person. These figures assume a full state pension worth £9,339 a year. 

A minimum income would cover all your needs with a little left over for fun; a moderate one offers more financial security and flexibility; and a comfortable income even more financial freedom and some luxuries.

When you start is as vital as how much 

When you start saving towards a pension is as important as how much you save each month. 

If you start early, not only do you have longer to build a sizeable retirement pot, but thanks to the power of compound interest, the pension contributions that you make early on have time to grow with no extra effort from you required. 

So, for example, if you want a moderate lifestyle in retirement from the age of 65, you would need to save £355 every month from the age of 22. 

But, if you started saving at the age of 40, you would need to save almost double that amount – £690, to have the same retirement. 

In fact, so valuable are those pension contributions early on in your career that if you saved £100 a month from the age of 18 to 38 (20 years of saving) and then stopped, you would likely have more by the time you hit retirement age than if you saved £100 a month from age 38 to 68 (saving for 30 years).

Delay a few years for a richer retirement 

The simplest way to achieve a comfortable retirement is to start saving early, regularly and save as much as you can. 

But that’s easier said than done. When times are tight – as they are set to be this year in particular with rising household bills and inflation – sometimes it can be hard to prioritise an event years or even decades away. So, another option is to delay retirement if you can, as our figures show. 

For example, to receive a comfortable income from the age of 55, you would have to save a massive £1,360 a month from the age of 22. But if you delayed retirement until age 70, you would need to save £555 per month.  

The default retirement age has been removed, so in most cases employers can no longer force workers to retire. The amount of help and resources available for older workers who want to retrain or want better support in the workplace has also improved in recent years. 

Go to gov.uk/government/publications/help-and-support-for-older-workers for more information. 

If you do choose to work beyond state retirement age, you could supplement your income with the state pension to maintain your standard of living while working fewer hours. 

Alternatively, if you find you are making enough to live on, you could consider delaying your state pension to boost your payments when you do start to receive it. For every year that you delay your state pension, you receive an extra £10.42 a week when you do start to take it.

Save hard if you want to retire early 

One in five workers hoping to retire early plan to do so when they hit the age of 55, a survey from Aviva found. And of those who have retired early, two-thirds are happier for it. 

Start saving early and retiring at 55 needn’t be an unreachable dream. For example, if you save £90 every month from the age of 22, you should have enough for a modest lifestyle in retirement from age 55. 

Bump that to £640 a month and you should be able to afford a moderate lifestyle. 

For a more luxurious one, you will need to save £1,360 a month.

Your state pension will do a lot of heavy lifting 

All the figures so far assume a full state pension. When this is taken out of the equation it brings home just how valuable the state pension income is for retirees. 

For example, if you want to retire on a moderate income at the age of 65, you would have to save £640 every month from the age of 22 if you did not have a state pension. 

But as earlier stated, to achieve the same income with a state pension, you would only have to save £355 every month. For most retirees, the state pension will form the bedrock of their income. 

For someone of the same age who wants to retire on a moderate income at the age of 60, they would have to save £875 a month if they did not have a state pension – £480 a month with the full state pension. 

However, younger workers may want to be a little wary of relying on it too heavily. 

As our population ages, the cost of providing the current state pension continues to grow and there is no guarantee that a future government would not make it less generous in the name of affordability. 

After all, the state pension age is inching up for this reason, and the state pension triple lock will be broken this year to keep costs down. 

Remember… your workplace helps too 

Saving £355 every month from the age of 22 – or £690 a month from the age of 40 – just to retire on a moderate income at age 65 can sound very challenging. And for many people, it will be. 

However, don’t forget that not all of that monthly sum needs to come from you. 

Employers are now obliged to contribute the equivalent of at least three per cent of your salary into your pension, while workers must pay in five per cent. 

Some employers are even more generous. For example, if you are saving £355 a month into your pension, and that sum amounts to the minimum permitted contribution of eight per cent of your income, £133 of that will be coming from your employer and you will only have to pay the remaining £222. 

So it always pays to save into a company pension if you can. 

Sarah Pennells, consumer finance specialist at Royal London, says: ‘If you’re in a workplace pension, there may be ways you can pay a bit more into it.

‘For example, a number of employers will match employees’ pension contributions beyond the minimum they have to pay in under automatic enrolment rules, up to a certain limit. 

‘That means that when you pay extra into your pension, your employer will pay in as well. If you get paid a bonus, you may be able to exchange some or all of it for contributions into your pension.’ 

Don’t forget that pension contributions are tax free. That means either they are taken from your salary before tax is paid or you can claim the tax back afterwards through your tax return or by contacting Revenue & Customs.

Pension saving can be bumpy 

For the purposes of our calculations, we have assumed that contributions are made consistently, week in, week out. 

In reality, this will rarely be the case. There may be periods of unemployment, time out for parenting or caring responsibilities, poor health or to retrain. 

While the particulars that could see you out of work are hard to predict, it is safe to assume you may have time out of the workplace at some stage. 

Therefore, it can be worth saving more at the times when you can to make up for the times that you are saving less. 

Similarly, if you receive bonuses at work or have another windfall, it is always worth considering putting some of that into your pension.