Retirement saving: those aged 50-59 require an extra £130k+ to retire comfortably

According to a recent study by SunLife, the average pension pot of those aged 50-59 in the UK is just £146,666.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

To retire comfortably today, you need savings of at least £280,000 to £300,000, according to financial experts. Assuming you’re entitled to State Pension income (£168.60 per week), this should be enough to provide for a moderate lifestyle in retirement.

The problem is, however, that many people who are approaching retirement age have nowhere near that level of pension savings. For example, according to a recent study by insurance group SunLife, the average pension pot of those aged 50-59 in the UK is just £146,666.

Clearly, there’s a huge pension savings gap here. With the average pension pot of those in their 50s standing at less than £150k, many people are on track to hit retirement age with an insufficient level of savings to retire comfortably. This ultimately means that retirement may not be what they were expecting it to be.

So, what can you do if you’re in this position and need to make up a £130,000+ shortfall?

Up your savings

To my mind, the first thing to do if you’re approaching retirement and your pension savings are a little on the low side is aim to boost your monthly savings. Try to cut down on unnecessary expenses so that you can save more money and always pay yourself first so that saving is a priority.

Pocket government bonuses

Next, I’d suggest taking advantage of ‘tax relief’. This is essentially bonus money that the government hands out to those who are willing to save for retirement.

All you need to do to get your hands on tax relief bonuses is save into a pension account. This could be a workplace pension, a personal pension, or a Self-Invested Personal Pension (SIPP).

Basic-rate taxpayers are entitled to 20% tax relief meaning that if you put £400 into a pension, the government will add in another £100 for you. Put in £800, and this will be topped up to £1,000. This could really help you boost your pension savings.

Grow your money over time

Finally, get your money working for you. The best way to do this, assuming you have a long-term investment horizon (more than five years) is to invest in growth assets such as shares and funds. These are riskier than cash savings, but in the long run, they tend to produce much higher returns.

For example, according to this year’s Barclays Equity Gilt Study, UK stocks have delivered a return of around 4.9% per year above inflation (so around 7%-8% overall) since 1899, versus just 1.3% for bonds and 0.7% for cash. Can you afford to ignore that kind of return?

Doing a quick ‘back-of-the-envelope’ calculation, I calculate that if you saved £5,000 every year from the age of 50, picked up 20% tax relief from the government, and generated a return of 7.5% on your money every year through the stock market, by 65, you’d have an extra £163,000 to your name. Pension savings gap sorted.

If you’re looking to learn more about how to invest your money in the lead up to retirement, you’ve come to the right place.

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.

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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

I’d try to grow a £100K SIPP by 9% annually doing this!

Our writer thinks a slow and steady approach could help him build the value of his SIPP dramatically. Here he…

Read more »

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

£8k in savings? Here’s how I’d aim to retire with a second income of £1,000 a month!

This Fool is considering a strategy to secure a second income from a small pool of savings. With the right…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

£30k in savings? Here’s how I’d aim to turn that into a second income of £15k

Here’s how I’d aim to invest in stocks and shares to generate a decent second income worth having in retirement…

Read more »

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 »