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Are you making this catastrophic retirement mistake?

There’s one big retirement mistake hundreds of thousands of savers across the UK are making right now. If you’re one of them and you continue to do so until retirement, you could be in for a shock when you finally decide to quit the rat race. What’s more, once you’ve retired, it’s tough to correct this error, and you could be forced to work so much longer than you initially expected.

The good news is it’s relatively easy to correct this potentially catastrophic retirement mistake. And the first step in the process is to acknowledge where you’re going wrong.

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One big mistake

The mistake I’m talking about isn’t saving enough. According to several studies published over the past 10 years, around half of the working-age population in the UK isn’t saving enough for retirement, and this really is a big problem.

According to a recent survey by consumer magazine Which?, the average retired couple needs £27,000 a year to retire in comfort and meet all essential expenditure, which includes things like housing and food.

A couple is currently entitled to an annual State Pension of £15,375 a year, which leaves a gap of around £11,625 for retirees to make up themselves. According to my calculations, a pension pot of £290,625 is required to provide this level of income.

Building the pot

If you’re one of the tens of thousands of British savers who have made this mistake and don’t have enough money to retire on, now’s the time to start saving and preparing for the future. The best way to do this is to invest your money. If you start saving and investing for the future as soon as possible, it’s relatively easy to correct the big mistake.

For example, over the past 10 years, the FTSE 100 has produced an average annual return for investors of around 7%. I calculate at this rate of return, a saver would need to put away just £125 a month to build a pension pot worth £320,000 over the space of four decades. That’s more than enough to retire in comfort, according to the figures produced by Which?

If you only have two decades to go until retirement, you’ll have to put away slightly more every month, but it’s still possible to retire in comfort from a standing start.

Monthly contributions of £550 for 20 years would be required to achieve a pension pot worth £290,000, assuming an average annual return of 7%, according to my calculations.

The bottom line

The biggest mistake you can make when planning for retirement is not saving enough. The easiest way to remedy this problem is to sit down and work out how much you need to save to achieve a comfortable retirement and then work towards that goal.

The longer you have, the easier it is to save for the future. Put simply, it doesn’t pay to put off saving for retirement.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.