The large majority of Brits have no clear idea of how much money they’ll need in retirement. Most don’t have a target number either and don’t know at what age they’d like to retire. Still, a surprisingly large number of Brits think they’ll “probably be fine” with a pension pot of about £355,000, according to financial planning and investment firm Sanlam Wealthsmiths.
For most Brits, however, this amount will fall way short.
How much money do you need?
A pension pot of £355,000 equals an annual income of just £13,000. This is actually lower than the average UK pension, which provides £15,080 per year. And it’s a lot less than the amount Brits say they feel they’d need per year in retirement, which comes at £34,000 a year. To achieve that amount, pension pots would have to be closer to £1 million.
Why are the numbers not adding up? Simply put, most people aren’t willing to do the maths. Others are not willing to make early decisions that would impact that number.
Why does age matter?
Until 2028, people can still access their pot as early as 55 years old (it will rise to 57 in 2028). But the earlier you retire, the more money you’ll need in your pension pot if your goal is to stop working completely. Somebody retiring at 55 and living until 81.2 (the average life expectancy in the UK), has a lot of years ahead that need to be covered by a pension.
According to the Pension and Lifetime Savings Association, those looking to retire at 55 will need £20,200 per year for a moderate lifestyle and £33,000 a year for a comfortable lifestyle. That will require a pension pot a lot higher than £355,000.
On the other hand, Unbiased points out that spending £40,000 per year (which wouldn’t be that hard to do if you wanted to travel or tackle big home repairs after retirement) would mean you need a £650,000 pension pot instead. That’s close to double what the average Brit thinks they would need to retire.
How much money will you have when you retire?
If you aren’t sure how much money you’ll get once you retire, places like MoneyHelper have pension calculators available. Keep in mind that these calculators will give you a forecast of the likely pension income you’ll get once you retire. The numbers aren’t exact and might change if your contributions change along the way.
How can you boost your pension pot?
The easiest way to boost your pension is to put more money into it. You can take advantage of any salary increases to pay more into your pension or pay into a private pension. Or you can ask your employer if they will match your contributions.
You should also look into consolidating your pensions from different employers to save fees. But, more importantly, you should set a target retirement income. Knowing how much money you want and need in retirement will help you plan better. If you’re behind with your government pension pot, you can then also look into investments or private pensions to make up the difference.