We Need £1m To Retire Comfortably

We believe in all sorts of crazy things, such as astrology, ghosts and scientology. But, as we wrote recently, even pragmatic people believe crazy things, like £50,000 is enough to retire on. The truth is that many reading this article will need around £1m.

Equity release company Economic Lifestyle says that a woman retiring at 65 today will need a pot of around £438,000 and a man £367,000, because of his shorter life expectancy. The average per pensioner is £402,000. But that's just the start of the bad news.

One thing I do believe in is the power of medical science. I have faith it'll accelerate, which means that, to me, adding on 5 years to a 40-year-old's life expectancy is a rather conservative estimate. That's great, but if you're 40 it means you'll need an awful lot more than £400,000. Doing some rough sums, you'll need around £500,000 in today's money.

And there's the second problem. Today's money won't be the same in 25 years time. Adjusting for rising prices (inflation), you'll need more like £927,000. Of course, anyone in their twenties or thirties will need to save even more.

Remember also that these figures are based on retiring at 65. If you want to retire earlier then, again, you'll need to save more. Even now if you want to retire this year at 60 you'd require a pot of around £500,000 to be comfortable, so a 40-year-old who wants to retire at 60 will probably need well over £1m.

I discussed this with one of my colleagues today and he said it's depressing. But we must remember we have time on our side. We don't have to actually put away £1m, because what we put into our retirement fund should be invested. This way, we'll benefit from capital growth, e.g. rising share prices. We also benefit from compounding.

What we must do, however, is think seriously about the amounts that we're saving for the future. Already, says Economic Lifestyle, a woman of 65 today can expect to live to 89, and a man to 86. Twenty-odd years is a long time to live in poverty. The old rule is that, assuming you don't have any investments already, we should halve our age and put that percentage of our gross salary into a retirement fund, e.g. if you're 24 you put in 12% of your gross salary (including tax relief and employer's contributions). I think we should now consider contributing even more.

> Give your children a head start: read My Son The Millionaire.

> Learn more about saving for retirement.