How much do you need to save for retirement in the UK? It might not be as much as you think

Saving for retirement might seem like a daunting prospect, but building a comfortable pension pot might not be as hard as you think.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

How much do you need to save for retirement? This is a question on every saver’s lips, but unfortunately, there’s no easy answer.

How much you need to save is going to depend entirely on what sort of life you want to live in retirement.

Consumer magazine Which? has a great guide on this. The magazine has surveyed more than 6,000 real retirees to find out their spending habits and compile a guide of how much money the average retiree needs to live comfortably every year. 

Three brackets

The results of the survey revealed that there were three main income brackets for retirees. On average, respondents said they spent £2,220 a month or £27,000 a year, but the results varied greatly.

Essential spending averaged £17,800 per year, which gives us a great idea of the lowest bracket. Including a few European holidays every year, spending increased to £27,000. And for the highest bracket, which includes the basics and “luxuries such as long-haul trips and a new car every five years” the cost rises to £42,000. 

How much do you need? 

So, depending on what sort of retirement you want to have, you’ll need either £17,800, £27,000 or £42,000 in income every year. These figures exclude any State Pension income. If we deduct this income (currently £8,767.20 per annum), the numbers fall to £9,032.80 for the first bracket, £18,232.80 for the second bracket and £33,232.80 for the third, luxury bracket. 

Once you know how much income you’ll need every year in retirement, the next stage is to calculate how much you need to save. To do this, we can use the multiply by 25 rule to give a rough answer. The results of this are in the table below:

Pension bracket  Basic Average  Luxury 
Funds needed on retirement  £225,820 £455,820 £830,820

Building the pot

The best way to build your pension pot up to the level required is to invest your money. A low-cost FTSE 100 or FTSE 250 tracker fund is a great instrument you can use to do this if you have no investing experience.

Over the past decade, these two indexes have produced returns of between 7% to 10% per annum

At a rate of return of 10% per annum, accumulating a pension pot of £225,820 will take around 26 years of saving £150 a month according to my numbers. 

If you want to invest directly in stocks, then there are plenty of other options. I recommend looking for companies that have a durable competitive advantage and track record of creating value for investors because, if you’re investing with a 20 or 30-year time horizon, you need to be sure that the companies you buy will still be around when it’s time to retire.

Companies like GlaxoSmithKline fit the bill perfectly, in my opinion. Investment trusts might also be a great option, as many of these have been around for over 100 years. Some have been paying and increasing their dividends for the past 40 years straight. 

So all in all, if you invest sensibly and keep saving a little every month, nothing is stopping you reaching your pension target, no matter which level of income you choose. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Retirement Articles

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

2 UK shares that could help set up a SIPP for decades!

Our writer explains the long-term appeal he sees in one British share he already owns in his SIPP -- and…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Here’s how I’m aiming to become a Stocks and Shares ISA millionaire!

I'm confident that a regular investment in FTSE 100 and FTSE 250 shares could supercharge the size of my Stocks…

Read more »

Investing Articles

3 top tactics that ISA millionaires use to strike it rich!

Ever wondered how ISA millionaires manage to make such enormous wealth? Here, Royston Wild divulges some of their greatest strategies.

Read more »

Investing Articles

Can a Stocks and Shares ISA help me retire early?

This Fool is confident that using his Stocks and Shares ISA will allow him to give up work early. Here…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Cash vs Stocks and Shares ISAs: here’s where I’m investing in 2024!

Cash and Stocks and Shares ISAs are both excellent products for the modern saver and investor. But which is the…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how I try to find brilliant shares for my SIPP

Christopher Ruane shares the approach he takes when hunting for shares to buy and hold in his SIPP as he…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

3 FTSE 100 and FTSE 250 stocks I’d buy to target a £31,188 passive income!

Royston Wild explains how a regular monthly investment in FTSE 350 stocks could be the key to long-term wealth creation.

Read more »

Investing Articles

How I’d try to turn a small ISA into £1,000,000 with this savings trick!

Regular investment in a tax-efficient Stocks and Shares ISA could be an effective way to build long-term wealth. It could…

Read more »