A single person would need £43,900 a year to live comfortably, according to the latest Pensions and Lifetime Savings Association (PLSA) standards, equating to a pre-tax retirement income of £52,220.
Whilst this seems like a lot, the experts warned that much pension planning is based on outdated assumptions, including the expectation that retirement will only last 17 years.
Here, The i Paper takes a look at what it really takes to retire comfortably – and how much you need to save each month to get there.
This assumes they want a guaranteed lifetime income and bought their annuity after taking their 25 per cent tax-free lump sum which can typically be accessed from age 55, though this is set to rise to age 57 from 2028.
This also factors in the full state pension, currently £11,973 a year, and is based on current annuity rates of 5.66 per cent.
If you start at 35, you will need to put £944 away a month
Someone starting at 35 would need to save £944 a month to hit the full £948,103 target – or £708 a month if using the 25 per cent tax-free lump sum for income.
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He added: “They can mitigate the effect of inflation by increasing their monthly contributions annually in line with their earnings. This will happen automatically for those paying in a percentage of their pay.”
A 45-year-old with no existing pension would need to contribute £1,837 a month to reach the comfortable target, or £1,378 a month if using tax-free cash to generate income.
Mr Monk said: “While it may feel daunting, it’s encouraging that people are taking actionable steps to make their vision of retirement a reality.
If you start at 55, you will need to put £4,328 away a month
Waiting until 55 to start saving for retirement would require an extraordinary level of contributions.
At this stage, buying an annuity becomes a key focus, especially for those wanting stability in later years.
The cost of living longer
If someone wants to draw £43,500 per year from the age of 65, rising with three per cent inflation and receive the full state pension, they would still need to draw £32,882 annually from their own savings.
To do that:
A man would need a pot of around £600,000 A woman would need around £640,000. This is because they statistically live longer and so need more funds If that same man lives to 92 instead of 85, his requirement rises to £750,000 With just 2 per cent investment returns, the pot must be £810,000 If inflation rises to 4 per cent, the required pot would be £803,000“But the longer people live, the more flexibility they’ll need. Many now want the financial option to step back earlier – or to work later, part-time or flexibly – not just for necessity, but for fulfilment.”
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